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Employer convicted for omitting Employer's Returns for its directors

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An employer was convicted for 3 counts of offence in respect of making incorrect Employer's Return of Remuneration and Pensions ("Employer's Return") after pleading guilty to all the charges at the Eastern Magistracy today (June 6).

In passing the sentence, Magistrate Henry Mierczak ordered the defendant to pay a total fine of $13,000 and a total further fine of $100,000, which is about 25% of the tax undercharged, totalling $113,000. The representative of the defendant told the Court that the defendant was unable to pay the penalty. The Magistrate then ordered the defendant to pay the penalty within one month and if it was not able to do so, to appear on June 8, 2001 to inform the Court about the evidence which the defendant intended to adduce to prove its current financial position.

The defendant, a carpet-trading company, was charged for making 3 incorrect Employer's Returns for the years of assessment 1994/95, 1995/96 and 1997/98, by omitting returns (I.R. Form 56B) in respect of all its 3 salaried directors for the first-mentioned 2 years and in respect of 2 salaried directors for the last-mentioned year, contrary to section 80(2)(a) of the Inland Revenue Ordinance.

Under section 52(2) and (3) of the Inland Revenue Ordinance, an employer is required to file for each year of assessment an Employer's Return including returns which contained the names, places of residence and the full amount of the remuneration in respect of all the persons employed (including directors) and received remuneration in excess of a certain limit during that year.

The Court heard that the defendant had 4 directors who were also its shareholders. Three of them drew salary from the defendant and were in charge of its management and operation. The other director was inactive and did not receive any income from the defendant.

Each of the 3 salaried directors received annual remuneration ranging from $320,000 to $600,000. For each of the relevant years of assessment, the defendant only filed I.R. Form 56B for its 15 to 16 employees but not the directors. An investigation into the Employer's Returns filed by the defendant revealed that the defendant had omitted I.R. Form 56B in respect of its 3 salaried directors who received remuneration from the defendant in excess of $3.6M in total for the 3 years of assessment 1994/95, 1995/96 and 1997/98. The amount of tax undercharged, or would have been undercharged, as a result of the defendant's incorrect Employer's Returns exceeded $400,000.

A spokesman for the Inland Revenue Department said that any person who made an incorrect return, including an Employer's Return is an offence. The maximum sentence is 3 years' imprisonment and a fine of $50,000 for each charge, plus a further fine of treble the amount of tax undercharged.

End/Wednesday, June 6, 2001

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