Profits Tax Return - Fair Value Accounting

Subsequent to the judgment of the Court of Final Appeal in Nice Cheer Investment Limited v CIR, the Department has been requested to accept financial statements, which will form part of the 2013/14 profits tax return, prepared on a fair value basis for tax reporting.  The Department understands that substantial costs will be incurred if profits computed on a fair value basis are to be recomputed on a realisation basis.

The Financial Services and Treasury Bureau and the Department are studying the issues arising from the judgment, in particular whether there should be a change in law to allow continuation of the mark-to-market practice.

The Department agrees to accept 2013/14 profits tax returns in which the assessable profits are computed on a fair value basis.  Taxpayers and their representatives should take note that this is an interim administrative measure.

The Department agrees to re-compute the 2013/14 assessable profits computed on a fair value basis if the taxpayer subsequently adopts the realisation basis.  However, any request for re-computation should be made within the time limits laid down in sections 60 or 70A of the Inland Revenue Ordinance.