Background
Given that tax collection has been one of the steady and important sources of a government’s revenue, it is truly remarkable to find that there has been in fact no case law on what are the elements which constitute the criminal offence of Tax Evasion in Hong Kong.
The offence of Tax Evasion has always been prosecuted in Hong Kong under section 82(1)(d) of the Inland Revenue Ordinance, Cap.112, LHK which reads:
“Any person who wilfully with intent to evade or to assist any other person to evade tax signs any statement or return furnished under this Ordinance without reasonable grounds for believing the same to be true, commits an offence.”
The scarcity of any case law analyzing in detail the above offence is attributed to the fact that there have been hardly any contested cases. In almost all prosecutions the accused had pleaded guilty to secure a lenient sentence. By a lenient sentence is meant a shorter term of imprisonment. Tax Evasion is considered an offence of severe gravity due to its definition that it is committed wilfully against the government, and nothing short of an immediate term of imprisonment would be imposed.
The Present Case
The accused in this case contested the allegations. She faced 11 summonses of Tax Evasion covering a period of 8 accounting years, being alleged to have claimed various fictitious payments for the purpose of reducing her tax liability. She was convicted of all the summonses. In the appeal against her convictions, one of the grounds was that the prosecution’s evidence adduced could not prove that she had not pre-signed her tax returns in blank or partially in blank when it was being handled by her tax representatives. The significance of this centered on a defence raised at the trial on the construction of the wording of section 82(1)(d) above as to what should be the elements of the offence under it. It was submitted before the magistrate that the relevant actus reus was the act of signing on the tax returns. Therefore, the relevant mens rea would be the mental state of the accused at the same time, when she was signing. If the accused had been signing these tax returns in blank it would be almost impossible to prove that she was wilful and had the intent to evade tax since the false details or information had not yet been filled in. Further, in the case of pre-signing, it would be doubtful that the taxpayer has no reasonable grounds for believing the contents of the tax returns to be true as those contents are not yet in existence.
There was no case authority on the law point being raised. The prosecution’s position on this at the trial was unclear. It was also ambiguous from the magistrate’s statement of findings whether he agreed to this legal proposition or not. On appeal, the prosecution conceded that the defence contention on the elements of the offence was correct but argued that this was also its position at the trial, a stance which is highly contentious. The prosecution further argued that the magistrate had also adopted the same position, which is again highly debatable.
Although the deputy Judge hearing the appeal dismissed the appeal, holding that the magistrate had indeed used the above approach on what were supposed to be the elements of the offence, this was the first time in the history in Hong Kong where the parties and the court have agreed over what should be the correct timing for assessing the elements of the offence of Tax Evasion under section 82(1)(d).
This case will be further appealed to the Court of Final Appeal, on grounds which include other unprecedented law points.
Key Takeaways
The offence of Tax Evasion has one ambiguity resolved by this appeal, in relation to what should be the correct timing to consider the actus reus and the mens rea of the offence. The correct timing to assess both is that moment when an accused signed on the tax returns to be furnished to the Inland Revenue Department, and not at any other point of time.
The consequence of this judgment is that Tax Evasion is not committed if the taxpayer pre-signs a tax return without any improper intention but decides to fill in the false details or information afterwards for submission to the Inland Revenue Department. As to whether such conduct will fall under any other possible criminal offence, this is outside the ambit of the judgment and this article.
The full judgment is available at: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=165517&currpage=T
Joseph Tse SC and Charlie Liu, instructed by WAN YEUNG HAU & CO. Solicitors, acted for the Appellant.
