2012-06-27-KPMG_China-上诉法庭维持原判_未实现收益不应纳入利得税的征税范围_3页_107kb

Case Title: Court of Appeal Decision on Unrealised Gains for Profits Tax
Date: June 19, 2012 (Court of Appeal, CACV 135-2011)

Overview

The Court of Appeal upheld the decision that unrealised gains on securities held for trading purposes are not chargeable to profits tax, contrary to the Inland Revenue Department's argument.

Background

Nice Cheer Investment Limited included net unrealised gains in its profit and loss account due to changes in fair value of trading securities. The taxpayer treated these gains as non-taxable but claimed deductions for unrealised losses. The IRD contended that these gains should be taxed in the year they were recognised.

Decision

The Court of Appeal determined that unrealised gains are not profits under the Inland Revenue Ordinance (IRO), as they lack realisation and do not meet statutory criteria. The court stated that taxing unrealised gains violates the principle that profit must be realised.

Comment

The decision is clear that unrealised trading gains are not taxable and is unlikely to be overturned. It underscores that assessable profits must align with statutory provisions, not merely accounting standards. The IRD may need to re-evaluate its approach to unrealised gains and tax Accounting interactions.