Field Audit and Investigation

The Field Audit and Investigation Unit is responsible for conducting field audits and investigations on businesses and individuals with a view to combating tax evasion and avoidance.

Back tax is assessed and penalties are generally imposed where discrepancies are detected. During 2007-08, the Field Audit and Investigation Unit completed 1,864 cases (including avoidance and prosecution cases) and assessed back tax and penalties of about $2.5 billion (Figure 32).

Field Audit
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 2007-08, there were 17 Field Audit sections.

Anti-tax Avoidance
Two of the 17 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 2007-08, the Field Audit and Investigation Unit completed 188 tax avoidance cases and assessed back tax and penalties of about $590 million (Figure 33).

Investigation Investigation officers are responsible for conducting in-depth investigations where tax evasion is suspected, and taking penal actions (including prosecution proceedings in appropriate cases) to create a deterrent to tax evasion. In 2007-08, there were 5 Investigation sections. Prosecution One of the 5 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 2007-08, the Department successfully prosecuted 8 tax evasion cases. They mainly involved taxpayers omitting or understating sales/profits or rental income. In the 8 cases, the defendants were each sentenced to 2 to 24 months' imprisonment, with immediate custodial sentences given in 4 cases and suspended sentences for the remaining 4 cases. The maximum case was fined $1.3 million whereas in another case the fine represented 270% of the tax evaded.