Field audit is conducted on both corporations and unincorporated businesses. The work of field auditors entails site visits to business premises and examination of accounting records of taxpayers in order to ascertain whether correct returns of profits have been made.

In 2004-05, there were 14 Field Audit sections.

Anti-Tax Avoidance

Two of the 14 Field Audit sections concentrate on tackling tax avoidance schemes, whereas other investigation officers and field auditors handle avoidance cases on an operational need basis.

During 2004-05, the Field Audit and Investigation Unit completed 213 tax avoidance cases and assessed back tax and penalties of about $1.4 billion (Figure 33) .

One of the 8 Investigation sections focuses on criminal investigation of tax evasion.

Tax evasion is a serious crime. If a person is convicted of tax evasion, the Inland Revenue Ordinance provides for a maximum custodial sentence of three years.

In 2004-05, 2 prosecution cases were heard before the court. In the first case, two property owners were fined $1 million, about 290% of the tax undercharged, for failure to inform their tax chargeability. The second case involved the understatement of business profits by concocting fictitious purchases. The defendant was finally acquitted after a 10-day trial as the Court accepted that he did not act with wilful intent to evade tax.

In addition to conducting audits on businesses, the Unit also carries out verification checks on the correctness of rental income reported by property owners. During the year 2004-05, the Unit has completed compliance check on 4,600 property tax cases (Figure 34) .