Profits Tax - Expenditure for ceasing the
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