Church fights HK$180m tax bill in court

PUBLISHED : Thursday, 21 January, 2010, 12:00am
UPDATED : Thursday, 21 January, 2010, 12:00am

The Anglican Church yesterday appealed in court against an Inland Revenue decision that it must pay HK$180 million in taxes on income generated from a luxury residential redevelopment in Tai Po.

The dispute concerns the Deerhill Bay project on a site owned by the church group Hong Kong Sheng Kung Hui.

The luxury project was developed under a joint venture formed between Hong Kong Sheng Kung Hui and Cheung Kong (Holdings) in 1993.

The court heard that, under the agreement, Cheung Kong paid a premium for the land of more than HK$700 million, while the church would get an upfront payment.

Hong Kong Sheng Kung Hui would be entitled to a guaranteed profit of HK$150 million.

The agreement also stipulated that the church would be allocated one-third of the site's apartments - 120 flats and 100 car parking spaces -for its own use.

Peter Ng SC, for the Inland Revenue, claimed the church had developed a piece of low-value agricultural land into high-end residential housing with Cheung Kong.

He said that, as a result of the redevelopment, Hong Kong Sheng Kung Hui was required to pay income tax spanning from 1998 - the year the flats were sold on the market - until 2005.

Hong Kong Sheng Kung Hui and its foundation, the two bodies that manage the church's properties, had earlier appealed to the Inland Revenue's Board of Review, which upheld the decision.

The church appealed to the Court of First Instance yesterday, before Mr Justice Anselmo Reyes.

Anthony Neoh SC, for Hong Kong Sheng Kung Hui, said the taxes were not applicable to the church bodies, since the project was developed by Cheung Kong (Holdings), not them.

He said Hong Kong Sheng Kung Hui had no intention of being involved in the business side of the project, and that the 1993 agreement merely recognised their land asset by making reference to its history.

Neoh noted that the land had been occupied by an orphanage, the Sheng Kung Hui St Christopher's Home, from 1935 until the mid-1980s, when the government determined the home would be relocated.

He said Hong Kong Sheng Kung Hui had explored its options to dispose of the land in 1989, including its redevelopment.

Applications for planning permission and land-use modification were also made because the land was originally earmarked for agricultural use, the court was told.

Money received by the church after the joint venture deal was signed with Cheung Kong in 1993 was put to charitable use, Neoh said.

Reyes has reserved judgment in the case.

Cheung Kong is not alone in seeking property assets owned by religious bodies for development.

Other examples of property companies in tie-ups with church groups to develop sites for commercial use include a luxury residential project in Mid-Levels developed by the Nan Fung Group.

In 1994, Nan Fung Development acquired 80 Robinson Road, on the site of the London Missionary Society's Nethersole Hospital, at a price of more than HK$5,000 per square foot.

The firm has won Town Planning Board approval to build two residential blocks comprising 264 flats ranging from 800 to 3,000 sq ft.

Phase one of Sun Hung Kai Properties' Pristine Villa development in To Fung Shan, Sha Tin, is another example.

The residential property was built on a site that was partly owned by the Lutheran Church's Tao Fung Shan Christian Centre.

Historical value

The court heard HK Sheng Kung Hui signed up for guaranteed profit, in HK dollars, on the Deerhill Bay project of: $150m