International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Hong Kong: No refund of tax paid due to fraudulent conduct of directors



Ayesha Lau

Darren Bowdern

The Hong Kong Court of Final Appeal (CFA) recently delivered judgment in Moulin Global Eyecare Trading (in Liquidation) v The Commissioner of Inland Revenue (FACV No 5 of 2013). The Court considered the position where profits tax payable by a company was overpaid because the directors had fraudulently misstated financial accounts and tax returns. In reality, there was no profit for a number of years but the directors were content to pay substantial amounts of tax to perpetuate continuing fraud on a grand scale on creditors and investors. The liquidators sought to recover this tax for the benefit of creditors on the grounds that the tax had been paid in error. The legal issue before the CFA was whether the knowledge of the fraudulent directors (in the preparation of fraudulent financial accounts and tax returns) could be attributed to the company.

The CFA, placing great reliance on the attribution of fraudulent knowledge to Moulin as well as issues of public policy, dismissed the appeal.

Having reviewed the facts and the language and legislative purpose of the statutory provisions contained in the Inland Revenue Ordinance ("the ordinance"), the Court held that the knowledge of the fraudulent directors should be attributed to Moulin. The leading judgment of Lord Walker of Gestingthorpe included a detailed restatement of the law of attribution of the fraud of directors of a company to the company itself and defined the limits and scope of the fraud exception to the attribution rules.

The Court, in acknowledging the importance of having a fair and efficient tax system which can be expected to produce public revenue to a more-or-less predictable level, held that prompt payment and finality within a reasonably short time were important policy aims and reflected in the ordinance. It is an essential part of the scheme of the ordinance that the Commissioner is able to make assessments on the basis of the taxpayer's returns and it would frustrate this statutory purpose if the fraud exception were to intrude into this scheme. Lord Walker therefore concluded that the fraud exception must be limited to its proper, limited role of barring unmeritorious defences in claims by corporate employers against dishonest directors or employees and their accomplices.

Consequently, the CFA held that the fraud exception should not apply to the claim against the Commissioner and the fraudulent knowledge of the directors would be attributed to the taxpayer. The liquidators could not rely on "error" to seek the refund of overpaid tax because Moulin, knowing that the return was false, had not made an "error" in the return but had instead told a deliberate lie in it.

The decision of the CFA is significant for two reasons: Firstly, it clarifies the legal principles governing the attribution of directors' knowledge to a company while adopting a narrow interpretation of the fraud exception to such attribution of knowledge. Secondly, the Court has taken a broad public policy approach to ensure the finality of assessments within the statutorily intended timeframe, even if creditors may lose substantially through overpaid tax on falsified profits.

Ayesha Lau ( and Darren Bowdern (


Tel: +852 2826 8028 & +852 2826 7166


more across site & bottom lb ros

More from across our site

Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
Sanjay Sangvhi and Sahil Sheth of Khaitan & Co explore this legal concept and its implications for companies doing business in India.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.