Taxman hustled on Yue Yuen bill

PUBLISHED : Thursday, 18 March, 2010, 12:00am
UPDATED : Thursday, 18 March, 2010, 12:00am

Between life's two certainties, logic suggests taxes are resolved before death. But the Commissioner of Inland Revenue's chronic foot-dragging over shoemaker Yue Yuen Industrial (Holdings)' HK$1 billion in disputed tax bills perhaps raises grave doubts.

Subsidiaries of the world's largest athletic footwear manufacturer, which supplies Nike, adidas and Reebok, yesterday won a High Court order against Hong Kong's tax commissioner regarding the long-delayed handling of the firm's objections to its profits tax assessments.

The Inland Revenue Department issued tax demands on Yue Yuen's assessed profits from 1997 to 2003, up to six years in arrears. In each case, Yue Yuen promptly objected to the assessed amounts on the grounds that all its sales and manufacturing business took place outside Hong Kong.

But the Taiwan-owned company has been forced to continue to wait - in some cases for an additional six years - for the tax department to make rulings on the objections.

'For instance, the assessment for 1997-98 was made in 2004. [Yue Yuen] objected a month later. In 2010, some six years afterwards, the Commissioner [for Inland Revenue] has yet to make a determination,' Mr Justice Anselmo Reyes wrote yesterday concluding a judicial review in the Court of First Instance. 'There has been inordinate delay by the commissioner,' he wrote.

At the same time, Yue Yuen was required to buy HK$432 million in tax reserve certificates (TRCs) while waiting for the department to issue its determination. This created cash flow constraints for the shoe maker.

To date, the firm bought HK$315 million worth of tax reserve certificates, about 30 per cent of the total tax demanded, the judgment said.

'The drain upon the group's cash-flow ... is now reaching a critical point,' lawyers for Yue Yuen argued. 'Eventually the TRC outlays will be more than the group can manage.'

Reyes declined a request from Yue Yuen to quash the HK$1 billion tax assessment.

But he ordered the commissioner to issue determinations on all of Yue Yuen's objections within six months, and to cover 75 per cent of the shoe maker's legal bills.

The Inland Revenue Department made submissions to the court claiming that all of Yue Yuen's profits had a Hong Kong source or would otherwise be subject to profits tax, a claim that was questioned by the judge.

The unexplained, protracted delay 'may be due to a myriad reasons, including the complexity of the audit being conducted into [Yue Yuen's] affairs by the [Inland] Revenue; incompetence, inexperience, inefficiency or overwork on the part of one or more of the assessors handling the audit; and a lack of manpower or other resources to conduct a speedy audit,' Reyes wrote in his judgment.

'Some of the reasons may be excusable, others may not. But delay by itself cannot be adequate foundation for an allegation of bad faith.'