Raymond Yeung Tax Consultant * former IRD Assessor

飛鴻稅務顧問 * 前稅務局評稅主任楊輝洪

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Profits Tax - Expenditure for ceasing the business

In the case Basssett Enterprise versus Petty 21 TC 730, the company made certain payments to employees to release the company from their service agreements. It was held that such payments were not made “for the purpose of the trade” and hence not deductible. The court ruled that as these arrangements were part of an agreement for selling the majority of the company shares to a prospective purchaser, the expenditure was not made for the purpose of the trade, but in the interest of the purchaser.

However in the case CIR versus Swire Pacific Ltd. HKTC 1145, the wages paid to workers who went on strike to protest a merger was held to be deductible. Press here for more of the case. It should be noted that in the Swire case the payment was to enable the company to go on for some time before the cessation of business.   

In the case CIR v Cosmotron Manufacturing Co. Ltd. 4 HKTC 562, the Privy Council held that the severance paid in accordance with employment law on cessation of business is deductible.

Because of the different court judgments, it seems that the deductibility of cessation expenses is far from clear. In my opinion, if the amount in question is large, it is advisable to pursue the claim and seek professional advice.      


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