Case Commentary

Tax Law — Court of Appeal dismisses Inland Revenue’s appeal on company directors’ additional tax liability for signing “incorrect” tax returns

This is the first ever case which touches on the third party’s liability for additional tax by reason of “incorrectness” in the company’s return. 

Koo Ming Kown & Anor v The Commissioner of Inland Revenue

Reference: [2021] HKCA 1037; [2021] 3 HKLRD 642
Court:        Court of Appeal
Before: Hon Lam VP, Chu JA and Barma JA in Court
Appearance: Denis Chang SC and Isabel Tam, instructed by Mayer Brown, acted for the two directors assessed to additional tax (the 1st and 2nd Applicants)
Date of Decision:   20 July 2021


Two company directors were assessed by the Commissioner of Inland Revenue (“CIR”) to additional tax on the basis of having signed incorrect tax returns for their company. They successfully challenged these assessments at the Court of First Instance. On the CIR’s appeal, the Court of Appeal upheld the annulment of the assessments to additional tax.

This is the first ever case which touches on the third party’s liability for additional tax by reason of “incorrectness” in the company’s return. 

 Key takeaways

• The Court of Appeal held in favour of two directors who, having signed the tax return of the company of which they were directors and having been assessed to additional tax on the basis of the “incorrectness” of those returns, challenged their liability to additional tax under s 82A of the Inland Revenue Ordinance (“IRO”).

• The central question in the case is whether such signing director can become liable to additional tax (under s 82A of the IRO) on account of having signed an incorrect tax return of the company.[1]

• The constructions contended for in this case are said to have “serious ramifications” – as observed by the Judge in the Court of First Instance, “There is … no previous case that actually decided the point about assessing a third party such as a director to additional tax for incorrectness in the company’s return.”[2]

Material facts

The CIR issued notices to a corporate taxpayer (the “Corporate Taxpayer”) for a number of years for the period 1996-2000, requiring it to make a tax return for those respective years. The case concerned two of the directors of the Corporate Taxpayer (the “Directors”) who signed tax returns of the Corporate Taxpayer for those years during those periods.

The Corporate Taxpayer was assessed to additional tax under s 82A of the IRO, on the basis that there had been understatement of assessable profits. The Corporate Taxpayer unsuccessfully appealed that assessment decision before the Inland Revenue Board of Review (the “Board”).

The CIR then sought to assess the Directors, personally, to additional tax under s 82A of the IRO. S 70 together with s 82B provides that certain assessments determined on appeal (including appeals against additional tax) “shall be final and conclusive for all purposes of this Ordinance as regards the amount of such [assessable profits]”. CIR’s position was that the Directors could not re-open the question of Corporate Taxpayer’s liabilities to the profits tax and argue that the returns were not “incorrect”.  

The Directors unsuccessfully appealed to the Board.

The Court of First Instance held in favour of the Directors and ordered that “the assessments under appeal be annulled”.[3] The matter went on appeal.

The Court of Appeal upheld the decision of the Court of First Instance, holding that pursuant to s 82A of the IRO, the CIR was not permitted to assess additional tax upon the Directors.

The CIR has lodged an appeal to the Court  of Final Appeal on the ground that it involves a question of great general  or public importance.[4]

[1] S 82A of the IRO provides, in certain circumstances, for persons to be liable to  be assessed to additional tax where they have inter alia made an incorrect return without reasonable excuse

[2] [2018] HKCFI 2593 at §§20-21

[3] [2018] HKCFI 2593 and [2019] HKCFI 51

[4] [2021] HKCA 1833


Denis Chang SC

Supreme at strategic planning of litigation. He takes a holistic view and his rich legal knowledge and experience means he is able to anticipate parties’ reactions accurately.
Legal 500 Asia-Pacific 2021 & 2022, Commercial Disputes – Leading Silks, Tier 1

Denis Chang, CBE, QC, SC, JP, Hon. LLD (Bristol) is Head of Chambers. He has advised on and represented clients in numerous landmark cases in different areas of practice including property and tax, constitutional and human rights litigation, Chinese customary law and more recently probate and administration. He has been named a “Recommended Counsel” in Doyle’s Guide to Leading Hong Kong Estates & Probate Litigation Barristers since 2021. 

In the technical area of tax law, Denis has acted for individual taxpayers as well as corporations in such leading cases as Zeta Estates Ltd v Commissioner of Inland Revenue (2007) 10 HKCFAR 196 in which the CFA, inter alia, overturned the Inland Revenue Department’s long-established practice of disallowing interest expenses incurred on borrowings to finance dividend payments and gave a new approach to what “fresh working capital” means.

Visit the profile of Denis Chang SC for more details on his experience.

 Isabel Tam

Isabel graduated with a first class LLB and with distinction in her LLM. She was awarded the Bar Scholarship in 2012. Her practice has an emphasis on commercial law, arbitration, tax, building management, public law and family law. She has been seconded to the Competition Commission and has worked at the International Environmental Law Research Centre in Kenya. She is also called to the New York Bar.

In the public law realm, Isabel has appeared in a number of landmark cases, including the Small House Policy judicial review before the Court of Final Appeal. A regular advocate in administrative appeals, she recently served as co-speaker at the CPD seminar Administrative Appeals: Law and Strategy.

In the area of family law, Isabel acted for the Respondent n the landmark case of AA v. BB [2021] HKCFI 1401, in which the Court of First Instance granted guardianship and joint custody to the non-biological parent within a same-sex relationship for the first time.

Find out more from Isabel’s profile

This article was first published on 24 January 2022.

Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.