BESINS HEALTHCARE (HONG KONG) LTD v. COMMISSIONER OF INLAND REVENUE

HCAL 227/2022

[2022] HKCFI 2932

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 227 OF 2022

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J U D G M E N T

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A.  Introduction

1.  The Applicant taxpayer in this case says that the Respondent (“Commissioner”) holds approximately $6 million paid by the Applicant, to which the Commissioner is not entitled. The Applicant demands the return or refund of that sum, and has brought these proceedings for that purpose. Albeit late in the day, the Commissioner has now agreed to refund that sum. But the Applicant will not take ‘yes’ for an answer.

2.  It is, therefore, necessary for me to resolve the issues. They turn primarily on the correct approach to the statutory regime in the Inland Revenue Ordinance Cap 112 (“IRO”) providing for tax assessment, objections and appeals in the context of holding over of the tax assessed, but on condition of the purchase of tax reserve certificates (“TRCs”).

3.  The issues arise in judicial review proceedings commenced by Form 86 dated 13 April 2022. On 27 April 2022, I gave leave to apply for judicial review, on the papers. Further evidence has been filed, and the matter has come on for substantive hearing.

4.  The Applicant has been represented by Mr Stefano Mariani, Solicitor Advocate. The Commissioner has been represented by Mr William Liu, Senior Assistant Law Officer, and Ms Jess Chan, Assistant Law Officer (Ag).

5.  At the end of the hearing, I reserved my decision. This is my Judgment.

B.  Factual Background

6.  The Applicant is a company incorporated in Hong Kong on 20 April 2009. It is part of a corporate group, which manufactures and distributes pharmaceutical products.

7.  Though the Applicant’s registered office is in Hong Kong, its substantive commercial operations are said to be carried out overseas, generally with the collaboration of third-party manufacturers and related third-party agents. Hence, since incorporation, the Applicant has conducted its affairs on the basis that it is not chargeable to profits tax in Hong Kong under section 14 of the IRO. Therefore, the Applicant filed tax returns stating that it did not derive any Hong Kong sourced profits, and so was not chargeable to profits tax.

8.  In 2018, the Commissioner commenced an audit of the Applicant’s tax affairs. Between 2018 and 2020, the Commissioner issued the Applicant with assessments to profits tax (“Initial Assessments”) for the years of assessment 2011/12 to 2018/19 inclusive (“Total Period”).

9.  For present purposes, the focus is on matters following the Initial Assessments raised for the years of assessment 2012/13 to 2016/17 inclusive (“Relevant Period”). For those years, the Applicant was assessed to a total of HK$107,540,448 of profits tax (“Disputed Assessments”).

10.  The Applicant disputes that it is liable to such profits tax, and in respect of each of the Disputed Assessments raised a timeous objection under section 64 of the IRO (“Objections”). The Objections maintained the Applicant’s argument that it is not liable to any profits tax, such that each assessment should have been ‘nil’.

11.  On receipt of the Objections, the Commissioner ordered that the payment of tax assessed in the Disputed Assessments be held over under section 71(2) of the IRO, subject to the purchase by the Applicant of TRCs in the amount of the Disputed Assessments for the Relevant Period, namely HK$107,540,448.

12.  For the Total Period, the Applicant was required to purchase eight TRCs to comply with the condition of the holdover in the total sum of HK$204,061,560. The Applicant purchased the TRC’s accordingly, and they stood as security for the payment of the disputed tax assessed.

13.  The Commissioner’s decision on the Objections was given in his Determination dated 13 January 2022 (“Determination”). Whilst he confirmed much of the Disputed Assessments, and so to that extent dismissed the Objections, he also decided that the total amount of the assessment confirmed in the Determination relating to the Relevant Period should be in the lower amount of HK$101,518,153. Therefore, the difference amounted to HK$6,022,295.

14.  As a result, the Commissioner now holds HK$6,022,295 more in TRCs than he claims is payable by the Applicant for the years of assessment in the Relevant Period. I shall define the HK$6,022,295 as the “Excess Amount”, though I note (as will be explained below) that the Commissioner does not accept that the sum is necessarily an excess.

15.  It may be relevant also to identify that the Determination additionally dealt with:

(1)  the year of assessment 2011/12, where the Commissioner adjusted the Initial Assessment to ‘nil’;

(2)  the year of assessment 2017/18, where the Commissioner adjusted the Initial Assessment to increase the assessment by HK$383,084; and

(3)  the year of assessment 2018/19, where the Commissioner adjusted the Initial Assessment to increase the assessment by HK$366,924.

16.  The TRC purchased in the sum of HK$3,900,000 for the year of assessment 2011/12 has been redeemed, and that sum has been refunded to the Applicant.

17.  The increased assessments for the years of assessment 2017/18 and 2018/19 total HK$750,008 (“Additional Amount”). The Applicant has expressed willingness to purchase TRCs in the Additional Amount.

18.  On 27 January 2022, the Applicant lodged an appeal against the Determination for the years of assessment 2012/13 to 2018/19 (namely, all of the years of assessment for the Total Period subject to the Initial Assessment, except for 2011/12). The appeal is brought under section 66(1) of the IRO, and will be heard by the Board of Review (“Board”) – with dates of hearing fixed for May 2023. The merits of that appeal are irrelevant for present purposes, and need not be addressed.

19.  By its solicitors’ correspondence in February 2022, the Applicant requested a refund of the Excess Amount, together with any interest due thereon, by repurchasing the relevant TRCs or portions of them. On 7 March 2022, the Commissioner rejected that request (“Refusal”). The Refusal was made on the basis that the Commissioner was not authorised to repurchase TRCs in the Excess Amount until the final disposal of the Applicant’s substantive tax appeals against the Disputed Assessments.

20.  The Refusal is the subject matter of these judicial review proceedings. The specific relief sought in the Form 86 includes an order of mandamus, requiring the Commissioner to “redeem” the TRC’s in an amount equivalent to the Excess Amount.

C.  Commissioner’s Change of Stance

21.  It seems that the parties entered into without prejudice communications beginning 15 August 2022. Obviously, I am not concerned with any exchange made on that basis.

22.  However, by open letter dated 14 September 2022, the Commissioner made a “final offer” to settle these proceedings by making a refund of the Excess Amount, albeit without interest for the time being. The letter stated that:

(1)  The Commissioner agrees to vary the conditions of the TRC purchased such that there will be a refund of the Excess Amount, and the Excess Amount would be held over unconditionally.

(2)  Further, TRC’s should be purchased by the Applicant to cover the Additional Amount.

(3)  As to whether there should be interest accrued on the Excess Amount for the period from date of purchase to date of variation, under section 71(7)(d) of the IRO, or whether any interest shall be payable by the Applicant for the period from the date of variation to the data final determination of the objection or appeal under section 71(10) of the IRO would depend upon the findings and judgment of the appeal, so that it is premature to agree interest or make a request for a ruling on a hypothetical situation.

23.  The letter, therefore, proposed entering into a Consent Order, in terms (which I shall simplify) that:

(1)  the Excess Amount would be repaid to the Applicant, without interest, within 21 days following the Commissioner’s receipt of the relevant original TRCs;

(2)  the Applicant would purchase TRCs for the Additional Amount within 21 days; and

(3)  the Commissioner shall bear the Applicant’s costs of these proceedings up to 15 August 2022, and costs incurred by the Commissioner thereafter shall be borne by the Applicant, all costs being taxed if not agreed.

24.  Mr Liu submits that the agreement to repay the Excess Amount is dispositive of these proceedings, and it is of no import as to what particular label is used to describe the repayment. Although the Commissioner cannot agree to pay interest on the Excess Amount, Mr Liu says that the issue of interest is both academic for the time being and in any event not raised in the pleaded Form 86.

25.  I think it can be said that the open offer to repay the Excess Amount appears to be conditional upon (a) the Applicant’s agreement to purchase TRC’s for the Additional Amount (which may not be controversial) and (b) the Applicant’s agreement to the proposed split costs order. However, by Mr Liu’s written submissions, the Commissioner’s position seems now to be that the Excess Amount can be repaid (without interest), and any disagreement as to the proper costs order can be the subject of argument, to await the parties’ ability to read and consider this Judgment.

26.  Further, though the focus of Mr Liu’s submissions has been as regards the repayment of any interest on the Excess Amount (because of the agreement to repay the Excess Amount itself), the argument developed in those submissions seems to me to be at least potentially relevant to the legal necessity or not for the refund of the Excess Amount – and also relevant to the mechanics of any refund.

D.  Statutory Context

D.1  Definition of Tax

27.  As is usual for statutes, the IRO contains a definition section. In section 2, “tax” is defined as:

Tax (稅、稅款、稅項) except for the purposes of Parts 12 and 13, means any tax imposed by this Ordinance (including provisional salaries tax charged under Part 10A, provisional profits tax charged under Part 10B and provisional property tax charged under Part 10C) other than additional tax, but for the purposes of Parts 12 and 13 tax (稅、稅款、稅項) includes additional tax;

D.2  Objections and Appeals

28.  The starting point of the process of objections and appeals with which this case is materially concerned begins, of course, with a prior assessment to tax.

29.  Part 10 of the IRO is headed ‘Assessments’, and section 62(1) provides as follows:

62. Notice to be issued by Commissioner

(1) The Commissioner shall give a notice of assessment to each person who has been assessed stating the amount assessed, the amount of tax charged, and such due date for payment thereof as may be fixed by the Commissioner.

30.  Part 11 of the IRO is headed ‘Objections and Appeals’, and comprises sections 64 to 70A.

31.  Under section 64 of the IRO, a taxpayer may object in writing to an assessment to tax issued by the Commissioner. Insofar as is material for present purposes (with other passages omitted), section 64 provides as follows:

64. Objections

(1) Any person aggrieved by an assessment made under this Ordinance may, by notice in writing to the Commissioner, object to the assessment; but no such notice shall be valid unless it states precisely the grounds of objection to the assessment and is received by the Commissioner within 1 month after the date of the notice of assessment:

Provided that—

(a) if the Commissioner is satisfied that owing to absence from Hong Kong, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving such notice within such period, the Commissioner shall extend the period as may be reasonable in the circumstances;

(b) where any assessment objected to has been made under section 59(3) in the absence of any return required under section 51, no notice of objection against such assessment shall be valid unless, in addition to such notice being valid in accordance with the foregoing provisions of this subsection, the return required as aforesaid has been made within the period provided by this subsection for objecting to the assessment or within such further period as the Commissioner may approve for the making of such return;

(c) where the assessment is a reassessment of the tax due from a person having the effect of either increasing or reducing that person’s liability to tax, the person so reassessed shall have no further right of objection than he would have had if the reassessment had not been made except to the extent to which, by reason of the reassessment, a fresh liability in respect of any particular is imposed on him or an existing liability in respect of any particular is increased or reduced.

(1A) For the purposes of subsection (1), where a person chargeable to tax is assessed under section 59(2)(b) or 60(1) in circumstances that, if the person had no other income, property or profits chargeable to tax under this Ordinance, the assessment would have been made under section 59(3)—

(a) the provisions of proviso (b) to subsection (1) shall apply to any objection made against that assessment to the extent to which that person has failed to comply with section 51; and

(b) no notice of objection against such assessment shall be valid unless and until that person has complied with section 51.

(2) On receipt of a valid notice of objection under subsection (1) the Commissioner shall consider the same and within a reasonable time may confirm, reduce, increase or annul the assessment objected to, and for the purpose of discharging his functions under this subsection may, by notice in writing, require the person giving the notice of objection to furnish such particulars as the Commissioner may deem necessary with respect to the matters which are the subject of the assessment and to produce all books or other documents in his custody or under his control relating to such matters, and may summon any person who in his opinion is able to give evidence respecting the assessment to attend before him and may examine such person on oath or otherwise. Where the Commissioner proposes to examine any person on oath under this subsection, he shall, by prior notice in writing, afford a reasonable opportunity to the person giving the notice of objection or his authorized representative to be present at such examination.

(3) In the event of the Commissioner agreeing with any person assessed, who has validly objected to an assessment made upon him, as to the amount at which such person is liable to be assessed, any necessary adjustment of the assessment shall be made.

(4) In the event of the Commissioner failing to agree with any person assessed, who has validly objected to an assessment made upon him, as to the amount at which such person is liable to be assessed, the Commissioner shall, within 1 month after his determination of the objection, transmit in writing to the person objecting to the assessment his determination together with the reasons therefor and a statement of the facts upon which the determination was arrived at, and such person may appeal therefrom to the Board of Review as provided in section 66.

32.  Hence:

(1)  A person aggrieved by an assessment made under the IRO Ordinance may object to the assessment.

(2)  To be valid, the objection must be made by notice in writing to the Commissioner, stating precisely the grounds of objection, received by the Commissioner within 1 month after the date of the notice of assessment (or any extended time).

(3)  The making of a valid notice of objection under section 64 remits the matter of the assessment to the Commissioner for his reconsideration.

(4)  The Commissioner is required to review the taxpayer’s position on a de novo basis, and may make a decision either annulling, confirming, increasing, or decreasing the amount of tax assessed.

(5)  The Commissioner’s opinion on the objection is, as it were, a second opinion in substitution for the opinion of the assessor.

(6)  If the Commissioner agrees with any valid objection, any necessary adjustment to the assessment shall be made.

(7)  If the Commissioner fails to agree with the objection, he must explain in his determination the facts upon which he has proceeded and the basis of the determination.

(8)  Thereafter, if the taxpayer is dissatisfied with the Commissioner’s determination of an objection under section 64, then the taxpayer may appeal to the Board as provided for in section 66.

33.  Section 66 of the IRO provides as follows:

66. Right of appeal to the Board of Review

(1) Any person (hereinafter referred to as the appellant) who has validly objected to an assessment but with whom the Commissioner in considering the objection has failed to agree may within—

(a) 1 month after the transmission to him under section 64(4) of the Commissioner’s written determination together with the reasons therefor and the statement of facts; or

(b) such further period as the Board of Review may allow under subsection (1A),

either himself or by his authorized representative give notice of appeal to the Board; but no such notice shall be entertained unless it is given in writing to the clerk to the Board and is accompanied by a copy of the Commissioner’s written determination together with a copy of the reasons therefor and of the statement of facts and a statement of the grounds of appeal.

(1A) If the Board is satisfied that an appellant was prevented by illness or absence from Hong Kong or other reasonable cause from giving notice of appeal in accordance with subsection (1)(a), the Board may extend for such period as it thinks fit the time within which notice of appeal may be given under subsection (1).

(2) The appellant shall at the same time as he gives notice of appeal to the Board serve on the Commissioner a copy of such notice and of the statement of the grounds of appeal.

(3) Save with the consent of the Board and on such terms as the Board may determine, an appellant may not at the hearing of his appeal rely on any grounds of appeal other than the grounds contained in his statement of grounds of appeal given in accordance with subsection (1).

34.  Insofar as is material for present purposes (with other passages omitted), section 68 of the IRO provides as follows:

68. Hearing and disposal of appeals to the Board of Review

(1A) At any time before the hearing of an appeal-

(a) the appellant may withdraw the appeal by notice in writing addressed to the clerk to the Board;

(b) the appellant and the Commissioner may reach a settlement on the amount at which the appellant is liable to be assessed.

(1C) Subject to subsection (1D), where a settlement is submitted and endorsed by the Board, any necessary adjustment of the assessment shall be made and such assessment shall be final and conclusive for all purposes of this Ordinance as regards the amount of relevant assessable income or profits or net assessable value.

(1E) In the event that a settlement reached under subsection (1A)(b) is not endorsed by the Board, the relevant appeal shall be heard by it.

(3) The assessor who made the assessment appealed against or some other person authorised by the Commissioner shall attend such meeting of the Board in support of the assessment.

(4) The onus of proving that the assessment appealed against is excessive or incorrect shall be on the appellant.

(8)(a) After hearing the appeal, the Board shall confirm, reduce, increase or annul the assessment appealed against or may remit the case to the Commissioner with the opinion of the Board thereon.

35.  Hence:

(1)  An appeal made by the taxpayer to the Board may nevertheless be subsequently withdrawn.

(2)  An appeal to the Board may also be compromised by way of settlement between the taxpayer and the Commissioner as to the amount at which the taxpayer is liable to be assessed.

(3)  If the Board endorses the settlement, any necessary adjustment to the assessment shall be made, and it shall become final and conclusive.

(4)  If the Board does not endorse the settlement, the appeal will be heard.

(5)  The appeal is dealt with on an adversarial basis.

(6)  A person may attend the appeal on behalf of the Commissioner in support of the Commissioner’s assessment.

(7)  The onus of proving that assessment is excessive or incorrect is borne by the appellant taxpayer.

(8)  The Board’s function, on hearing an appeal under section 68, is to consider the matter de novo.

(9)  The Board has the full powers to confirm, reduce, increase or annul the assessment appealed against.

36.  Further, though the appeal is from a determination, it is against an assessment: see Shui On Credit Co Ltd v Commissioner of Inland Revenue (2009) 12 HKCFAR 392 at §30.

37.  For present purposes, it seems to me to be important to ask whether the relevant assessment appealed against to the Board is (a) that made by the determination, incorporating any necessary adjustment of the original assessment as a result of the determination, or (b) the original assessment. Although during the hearing it seemed at one point that it might be common ground that the relevant assessment appealed against is the assessment as adjusted because of the determination, I do not think that is correct:

(1)  First, probably the real common ground was that, on the appeal in this particular case, it seems that the Commissioner will argue in support of the assessment as made in the Determination, rather than the Initial Assessments.

(2)  Secondly, if the Commissioner and the person assessed agree as to the amount at which that person is liable to be assessed, that is an alternative to – and there is simply no need for – an appeal.

(3)  Indeed, in this case, the Commissioner has not agreed with the Applicant as to the amount at which the Applicant is liable to be assessed. Whilst the Commissioner has reduced the amount that he thinks should be the amount at which the Applicant is liable to be assessed, he has disagreed with the Applicant’s contention that the amount should be ‘nil’.

(4)  Thirdly, an adjustment to the assessment is only necessary under section 64 when the Commissioner and taxpayer have agreed as to the amount at which the taxpayer is liable to be assessed. That is not the same as any measure of partial agreement as to the amount at which the taxpayer is not liable to be assessed.

(5)  That approach to section 64(3) and (4) – the latter of which leads on to section 66 – seems to me to be more consistent with the overall tenor of Part 11, as it moves towards reaching the point of finality (and its effect) identified in section 70.

(6)  Amongst other things, section 70 identifies that an agreement under section 64(3) gives rise to the finality of the relevant assessment. Plainly, the fact of an appeal to the Board evidences, and is predicated on, the lack of such an agreement.

38.  Section 70 of the IRO provides as follows:

70. Assessment or amended assessments to be final

Where no valid objection or appeal has been lodged within the time limited by this Part against an assessment as regards the amount of the assessable income or profits or net assessable value assessed thereby, or where an appeal against an assessment has been withdrawn under section 68(1A)(a) or dismissed under subsection (2B) of that section, or where the amount of the assessable income or profits or net assessable value has been agreed to under section 64(3), or where the amount of such assessable income or profits or net assessable value has been determined on objection or appeal, the assessment as made or agreed to or determined on objection or appeal, as the case may be, shall be final and conclusive for all such purposes of this Ordinance as regards the amount of such assessable income or profits or net assessable value:

Provided that nothing in this Part shall prevent an assessor from making an assessment or additional assessment for any year of assessment which does not involve re-opening any matter which has been determined on objection or appeal for the year.

39.  Hence, an assessment or amended assessment becomes “final” at whatever point is the end of the process of agreeing or determining the amount of the assessment, such that, for example:

(1)  if there is no valid objection to an assessment, the assessment becomes final;

(2)  if there is no valid appeal from the determination of an objection, the amount assessed in the determination becomes final;

(3)  if an appeal is withdrawn, the amount assessed in the determination becomes final;

(4)  if the appeal is settled with the endorsement of the Board, the agreed amount of the assessment becomes final;

(5)  if the appeal proceeds and the Board determines the amount of the assessment and there is no further appeal, the amount of the assessment as determined by the Board becomes final.

D.3  Tax Reserve Certificates

40.  The TRC regime in the IRO is governed by section 71, which is the first section in Part 12 of the IRO, and it provides as follows:

71. Provisions regarding payment of tax

(1) Tax charged under the provisions of this Ordinance shall be paid in the manner directed in the notice of assessment on or before a date specified in such notice. Any tax not so paid shall be deemed to be in default, and the person by whom such tax is payable, or where any tax is payable by more than one person or by a partnership then each of such persons or each partner in the partnership, shall be deemed to be a defaulter for the purposes of this Ordinance.

(2) Tax shall be paid notwithstanding any notice of objection or appeal, unless the Commissioner orders that payment of tax or any part thereof be held over pending the result of such objection or appeal:

Provided that where the Commissioner so orders he may do so conditionally upon the person who or on whose behalf the objection or appeal is made providing security for the payment of the amount of tax or any part thereof the payment of which is held over either—

(a) by purchasing a certificate issued under the Tax Reserve Certificates Ordinance (Cap. 289); or

(b) by furnishing a banker’s undertaking,

as the Commissioner may require.

(3) Where the Commissioner is of opinion either that the tax or any part thereof held over under subsection (2) is likely to become irrecoverable, or that the person objecting or appealing is unreasonably delaying the prosecution of his objection or appeal, he may cancel any order made under that subsection and make such fresh order as the case may appear to him to require.

(4) Where, upon the final determination of an objection or appeal under Part 11, or upon any order made by the Commissioner, any tax which has been held over under subsection (2) becomes payable or the tax charged is increased, the Commissioner shall give to the person objecting or appealing a notice in writing fixing a date on or before which any tax or balance of tax shall be paid. Any tax not so paid shall be deemed to be in default.

(5) Where any tax is in default, the Commissioner may in his discretion order that a sum or sums not exceeding 5% in all of the amount in default shall be added to the tax and recovered therewith.

(5A) Where on the expiry of a period of 6 months from the date when any tax is deemed to be in default, whether such date was before or after 1 August 1984, there remains unpaid any amount of the aggregate of—

(a) the tax deemed to be in default; and

(b) any sum added thereto under subsection (5),

the Commissioner may order that a sum or sums not exceeding 10% in all of the unpaid amount shall be added to the unpaid amount and recovered therewith.

(5B) (Repealed)

(6) Notwithstanding anything contained in the previous subsections of this section the Commissioner may agree to accept payment of tax by instalments.

(7) Where the Commissioner exercises his powers under the proviso to subsection (2) and a person is required to purchase a certificate under paragraph (a) of that proviso—

(a) a certificate in an amount equal to the tax or any part thereof the payment of which is held over shall be purchased within a period of 14 days from the date of the order of the Commissioner, or on or before the date for the payment of tax specified in the notice of the assessment, whichever is the later, failing which the provisions of subsection (2) shall apply as they would if there had been no order;

(b) the Commissioner shall, when he issues a certificate so purchased, note on it particulars sufficient to identify the objection or appeal to which it relates;

(c) upon the withdrawal or final determination of the objection or appeal a certificate or part of a certificate so purchased shall be accepted by the Commissioner in payment of so much of the tax held over as becomes or is found to become payable, and no interest shall be payable upon any certificate or part of a certificate so accepted;

(d) where, upon the final determination of the objection or appeal, and after all tax held over which becomes, or is found to be, payable has been paid in the manner specified in paragraph (c), any certificate or part of a certificate so purchased has not been accepted as payment by the Commissioner under paragraph (c), the Commissioner must repay to the holder of the certificate—

(i) the principal value represented by the certificate or part of the certificate; and

(ii) the interest on that value, calculated in accordance with the rules from the date of issue of the certificate to the date of the final determination of the objection or appeal; and

(e) no certificate so purchased shall be valid for any purpose except as specified in the preceding paragraphs.

(8) The provisions of subsection (7) shall apply notwithstanding anything to the contrary in the rules relating to such certificates made under the Tax Reserve Certificates Ordinance (Cap. 289) and any reference to the rules relating to such certificates in that subsection shall refer to the rules so made.

(9) Where the Commissioner exercises his powers under the proviso to subsection (2) and a person is required to furnish a banker’s undertaking under paragraph (b) of that proviso, the undertaking shall—

(a) be in a form acceptable to the Commissioner;

(b) be furnished to the Commissioner within a period of 14 days from the date of the order of the Commissioner, or on or before the date for the payment of the tax specified in the notice of assessment, whichever is the later;

(c) be given by a bank (as defined in the Banking Ordinance (Cap. 155));

(d) not be revocable without the consent of the Commissioner;

(e) be expressed to be an undertaking to pay—

(i) an amount equal to the tax or any part thereof the payment of which is held over; and

(ii) interest on that amount, from the date for the payment of the tax specified in the notice of assessment to the date of withdrawal or final determination of the objection or appeal, at the rate specified in subsection (11); and

(f) provide for payment to the Commissioner upon written notification to the bank by the Commissioner that the objection or appeal has been withdrawn or finally determined and that the amount, and interest, stated by him is now due,

and if such person fails to supply such an undertaking in such manner the provisions of subsection (2) shall apply as they would if there had been no order.

(10) Where the Commissioner makes an order under subsection (2) but does not exercise his powers under the proviso thereto, interest shall be payable on so much of the amount of the tax or any part thereof the payment of which is held over as becomes payable or is found to become payable upon the withdrawal or final determination of the objection or appeal, from the date for the payment of the tax specified in the notice of assessment or the date of the order, whichever is the later, to the date of withdrawal or final determination of the objection or appeal, at the rate specified in subsection (11).

(11) The rate of interest specified for the purposes of subsections (9)(e)(ii) and (10) shall be the rate determined by the Chief Justice by order under section 50(1)(b) of the District Court Ordinance (Cap. 336).

41.  The starting point in section 71(1) is that “tax charged” under the provisions of the IRO shall be paid in the manner directed in the notice of assessment. The use of the phrase “tax charged” must in context mean the amount of tax which has been assessed as payable, as shown in the notice of assessment – because section 62 requires the Commissioner in the notice of assessment to give notice of the amount of “tax charged”.

42.  Simply put, Hong Kong adopts a “pay first, argue later” regime. As stated in section 71(2), notwithstanding any objection or appeal, the taxpayer has to pay the tax as assessed, unless the Commissioner orders that the payment be held over pending the result of such objection or appeal. Such holdover could either be unconditional or conditional.

43.  However, there is no general power for the Commissioner to require the payment or to authorise the retention of funds as security for tax that could potentially be assessed in future. That also seems to be made clear in part by section 71(4), which provides that where the tax charge is increased upon the final determination of an objection or appeal under Part 11, the Commissioner shall give a notice in writing fixing a date on or before which any tax or balance of tax shall be paid. It is only at that point that the tax charged as increased becomes payable, and a failure to pay by the specified date would deem that tax to be in default. The date of default is itself important, as it is only from the date of default that the Commissioner may in his discretion order that a sum or sums not exceeding 5% in all of the amount in default shall be added to the tax and recovered with it: see section 71(5), and see also section 71(5A).

44.  TRC’s themselves are governed by a separate statute, the Tax Reserve Certificates Ordinance (“TRCO”). In case of any conflict between the provisions of the TRCO and section 71 of the IRO, the latter prevails. For present purposes, therefore, it is probably unnecessary to look at any particular provisions of the TRCO.

45.  Though not canvassed in argument for the purposes of this case, I think it relevant to remember that the Commissioner has formulated a policy to guide the exercise of his discretion under section 71(2). It is relevant, in part because the Applicant says the effect of the TRC regime can be taken into account when identifying the proper statutory interpretation of the relevant provisions. I traversed that policy and its effect in Ubiquiti Networks International Ltd v Commissioner of Inland Revenue [2022] HKCFI 170 at §§14-22.

46.  The policy is contained in a published document known as the “Department Interpretation and Practice Notes No. 6” (“DIPN 6”), of which §9 is pertinent (underlining in original):

9. The policy with regard to the issue of stand-over orders is as follows:

(a) Unconditional stand-over – Where, upon receipt of a valid objection and request for holdover, it is immediately apparent to an Assistant Commissioner, or other officer authorized by the Commissioner, that the objection should be allowed forthwith an unconditional stand-over will be ordered pending revision of the assessment. However, interest will be payable if any tax so held-over is finally found payable [see paragraph 14 below].

(b) No stand-over – Where, upon receipt of a valid objection and request for holdover, it is the opinion of an Assistant Commissioner, or other officer authorized by the Commissioner, that the objection has little chance of success, no stand-over will be ordered and the tax will be payable on the due date(s) contained in the notice of assessment.

(c) Purchase of tax reserve certificates – Where, upon receipt of a valid objection and request for holdover, it is the opinion of an Assistant Commissioner or other officer authorized by the Commissioner that the objection has some merit but that the balance of probability, based on the facts known to exist at the date of the objection, does not weigh definitely in favour of the taxpayer, a stand-over will be ordered conditional upon the purchase of tax reserve certificates in the amount of the tax stood-over. It is emphasized that, in the generality of cases falling into this category, the purchase of certificates will be required.

47.  Thus, under DIPN 6, the grant or not of a holdover and the imposition of any condition for a holdover turn on the view of the Assistant Commissioner, or other officer authorised by the Commissioner, as to whether:

(1)  it is immediately apparent that the objection should be allowed forthwith; or

(2)  the objection has little chance of success; or

(3)  the objection has some merit, but the balance of probability based on the facts known to exist at the date of the objection does not weigh definitely in favour of the taxpayer.

48.  It is when it is “immediately apparent … that the application should be allowed forthwith” that an unconditional holdover will be ordered. Otherwise, there will be no holdover at all or only a conditional holdover. The discretion conferred upon the Commissioner in deciding whether and if so on what basis to hold over tax is a wide one, and it is settled that DIPN 6 sets out sensible criteria to guide the Commissioner’s exercise of discretion.

49.  DIPN 6 is naturally ordinarily engaged when consideration is first given to the possibility of a holdover order – after the initial assessment and prior to the determination of an objection to it: see §§9(a), (b) and (c), which all start with “Where, upon receipt of a valid objection …”. But, section 71(2) itself does not limit the time at which such an order can be made. Further, section 71(3) specifically caters for at least some circumstances where the Commissioner can revisit his previous holdover order, to cancel it and make such fresh order as the case may appear to him to require. Though those particular circumstances relate to revisiting a holdover order to impose more ‘onerous’ conditions for the taxpayer, it would seem logical that there might be the power in appropriate circumstances to revisit the holdover order for revision to terms more ‘favourable’ to the taxpayer (see below).

50.  The Court has previously recognised the “hard options” faced by a taxpayer, who wishes to exercise a statutory right to object to a tax assessment issued by the Commissioner: see, for example, Dairyfarm Establishment v CIR [2018] 5 HKLRD 179 at §§1, 35-36. There, the potential disparities were recognised as follows:

(1)  Tax demanded under an assessment is payable on the due date specified in the assessment notwithstanding any objection or appeal, unless the Commissioner orders that the payment thereof be held over pending the outcome of the objection or appeal.

(2)  If the Commissioner does not order any holdover and the taxpayer pays the tax as assessed on or before the due date:

(a)  should the taxpayer ultimately succeed in his objection or appeal, he is entitled to be refunded the tax paid, but without any interest;

(b)  on the other hand, should he withdraw, or ultimately fail in, his objection or appeal, no further issue arises as the tax has already been paid.

(3)  Where Commissioner decides to make a holdover order, he may do so unconditionally or conditionally.

(4)  If the Commissioner makes an unconditional holdover order:

(a)  should the taxpayer ultimately succeed in his objection or appeal, no payment will need to be made by him and no further issue arises as there is no tax liability;

(b)  on the other hand, should he withdraw, or ultimately fail in, his objection or appeal, he has to pay the amount of tax that he is liable to pay plus interest on that amount from the original due date or the date of the order (whichever is the later) to the date of the withdrawal or final determination of the objection or appeal at the rate specified in section 71(11), which has stood at 8% per annum since 1 April 2009.

(5)  If the Commissioner makes a holdover order conditional upon the purchase of a TRC:

(a)  should the taxpayer ultimately succeed in his objection or appeal, he is entitled to be refunded the amount paid to purchase the TRC with interest at the rate specified in section 71(7)(ii), which is currently set at 0.05% per annum;

(b)  on the other hand, should he withdraw, or ultimately fail in, his objection or appeal, the TRC shall be accepted by the Commissioner in payment of the tax that the taxpayer is liable to pay and no further payment is required to be made by him.

51.  Hence:

(1)  the interest payable by the taxpayer (who withdraws, or ultimately fails in, his objection or appeal) to the Commissioner in the case of an unconditional hold over is 8% per annum;

(2)  the interest payable by the Commissioner to the taxpayer (who ultimately succeeds in his objection or appeal) in the absence of any holdover is nil; and

(3)  the interest payable by the Commissioner to the taxpayer (who ultimately succeeds in his objection or appeal) in the case of a holdover conditional upon the purchase of a TRC is 0.05% per annum.

52.  Such disparities may be amplified where the time taken to deal with the objection and any further appeal steps until final resolution may be measured in years rather than months or weeks. The potential impact of the passage of possibly significant time is obvious.

D.4  Other Provisions

53.  Mr Mariani also refers to sections 40 and 46 of the Interpretation and General Clauses Ordinance Cap 1 (“IGCO”), which materially provide as follows:

40. Construction of enabling words

(1) Where any Ordinance confers upon any person power to do or enforce the doing of any act or thing, all such powers shall be deemed to be also conferred as are reasonably necessary to enable the person to do or enforce the doing of the act or thing.

(2) Without prejudice to the generality of subsection (1), where any Ordinance confers power—

(a) to provide for, prohibit, control or regulate any matter, such power shall include power to provide for the same by the licensing thereof and power to prohibit acts whereby the prohibition, control or regulation of such matter might be evaded;

(b) to grant a licence, Government lease, permit, authority, approval or exemption, such power shall include power to impose reasonable conditions subject to which such licence, Government lease, permit, authority, approval or exemption may be granted;

(c) to approve any person or thing, such power shall include power to withdraw approval thereof;

(d) to give directions, such power shall include power to couch the same in the form of prohibitions.

46. Power to make public instruments and perform acts

Where any Ordinance confers power upon any person to make, grant, issue or approve any proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list, such power shall include power—

(a) to amend or suspend such proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list;

(b) to substitute another proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list for one already made, granted, issued or approved;

(c) to withdraw approval of any proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list so approved; and

(d) to declare the date of the coming into operation, and the period of operation, of any such proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list.

54.  Mr Liu accepts that section 46(a) and (b) of IGCO, in particular, applies in the absence of any contrary provision in the IRO, so that the Commissioner can exercise his discretion to vary or amend the holdover order, including as regards a TRC condition, or substitute a new order in place of the original.

E.  Grounds of Review

55.  The Applicant identified two grounds of review, being:

(1)  Illegality: the basis of the Refusal – namely, that he has no power to refund or repurchase TRC’s unless and until the substantive tax appeal is finally adjudicated – is misconceived and contrary to the plain words of section 71(7)(d); and

(2)  Irrationality: even if the section 71 of the IRO regime does not apply, the Commissioner would nevertheless be empowered to vary the terms of the holdover of tax, under section 46 of the IGCO, and where there is no principled basis for the Commissioner to retain the Excess Amount, his failure to return it was Wednesbury unreasonable.

56.  Although the first ground as originally formulated focused on whether there could be any refund at all, the Commissioner has since accepted that he can and will refund the principal sum of the Excess Amount. Hence, the argument has tended to focus on the remaining element of interest. But, as I have already indicated, the argument on whether there is the ability (let alone obligation) to pay interest is logically linked analytically to the question of any legal possibility or necessity for the refund of the principal sum of the Excess Amount, as well as to the mechanics of effecting any refund.

57.  As to the second ground, Mr Liu submits that even if irrationality is made out, the Commissioner’s change of stance has rendered the point otiose. But, again, I think it is necessary to consider this ground as part of the overall analysis.

58.  Therefore, though to an extent they might be thought to overlap, I shall deal in turn with each of the Grounds.

F.  Illegality

F.1  Applicant’s Argument

59.  On behalf of the Applicant, Mr Mariani submits that the stance taken by the Commissioner is contrary to the plain words of section 71(7)(d) of the IRO, which governs the repurchase mechanism for TRC’s under the IRO. The provision refers to the “final determination of the objection or appeal” (his emphasis), identifying that the draughtsman contemplated – and articulating the difference between – two separate processes, being (1) the determination of the objection, or alternatively (2) the determination of the appeal.

60.  Mr Mariani submits that the appeal to the Board is not a continuation of the objection, which would by then have been dismissed by the Commissioner in whole or part. Rather, it is a separate de novo consideration of the assessment confirmed by the Commissioner in the determination of the objection. In other words, an objection under section 64 and an appeal under section 66 are separate and distinct processes, involving (a) different decision-makers, (b) potentially different grounds of objection or appeal, (c) different procedural rules, and (d) the possibility of adjudication on different grounds. It does not matter that those two separate processes might be seen as two components of one larger process.

61.  Hence, he says, the question that must finally be determined so as to compel the Commissioner to repurchase a TRC is not the assessment which is the subject-matter of the objection or appeal, as the case may be, as distinct from the objection or appeal, which are statutory processes. Further, when the Commissioner makes a determination of an objection, he makes a final determination of that objection. The subject matter of an appeal is not the objection itself, which has by then been superseded by the determination, but the underlying assessment (which has, at least to some extent, been confirmed in the determination).

62.  Therefore, Mr Mariani says, where the Commissioner has allowed the Objections in part by reducing the Disputed Assessments, that was his final decision on – therefore, the final determination of – the Objections.

63.  Mr Mariani also relies upon the substantial difference between the rate of interest accruing on the TRC’s purchase by the Applicant and the prevailing commercial rate of interest, to make the submission that it cannot have been the intention of the legislature in enacting section 71 to cause sustained and potentially open-ended financial prejudice to the taxpayer by deferring repayment of tax that the Commissioner agrees is not due as a matter of law until after the taxpayer’s appeal with respect to the year of assessment in question has been finally resolved.

64.  Mr Mariani’s argument also involves the contention that the Excess Amount is no longer “tax” as defined in the IRO, because it is no longer assessed as being payable by the Commissioner. It therefore follows, he says, that there should no longer be security for “tax” equivalent to the Excess Amount. Indeed, Mr Mariani submits that the Commissioner has no express or implied statutory authority to retain sums paid to him by the taxpayer pursuant to section 71(2) on account of amounts that are no longer “tax” as defined. In short, he says that to the extent that the Disputed Assessments were revised downward by the Determination, so too should the relevant holdover order. As he put it, the IRO “operates in the present tense”, namely on the basis of what is currently in dispute between the Commissioner and the taxpayer.

65.  Mr Mariani submits that fact that the Commissioner no longer claims the Excess Amount logically means that he accepts that it belongs to the taxpayer, and there is no reason why the taxpayer should await the final conclusion of what is in dispute before having that money refunded. For example, if the Applicant were today to withdraw the appeal, it would undoubtedly be entitled to a refund of that part of the TRC’s relating to the Excess Amount, together with interest. It makes no sense, he says, to be denied the refund and/or interest simply because there is an extant appeal.

66.  Mr Mariani submits there is no other way to refund the Excess Amount other than by “redeeming”, hence the mandamus relief claimed in the Form 86. In this case, the original TRC’s would be redeemed, and replaced by new TRCs in the corrected amount. That would leave the Commissioner fully secured against the amount of tax for which he now claims the Applicant is liable.

F.2  Commissioner’s Argument

67.  Mr Liu notes that the Excess Amount was part of the assessment made by notices issued under section 62 of the IRO. Pursuant to section 71(1) and (2) of the IRO, the Applicant had to pay that tax charged by the due date set in the notices of assessment despite any objection or appeal. Therefore, under the IRO the sum of HK$6,022,295 – that is, the Excess Amount – is “tax charged”, and whether it is indeed payable is pending the final determination of the Applicant’s appeal to the Board (or any further appeal).

68.  Mr Liu submits that, by bringing the appeal, the Applicant has reopened the correctness of the tax assessment in the Determination. The Board will consider the correctness of the assessment de novo, and make any necessary factual findings based on the evidence placed before it. Therefore, whether the alleged Excess Amount is indeed an excess of the amount of tax properly to be assessed upon final determination of the appeal is not yet known.

69.  Focusing, as he does, on the question of interest, Mr Liu submits that the Applicant’s contentions are contrary to section 71 of the IRO. He says that where there has been no final determination of the tax appeal, the question of liability on interest has not arisen at all. In other words, without knowing the outcome of the final determination of the appeal, the actual amount of tax finally found to be payable is not yet known, and hence whether the TRC originally purchased (and any TRC as might be reduced) would be sufficient security cannot be determined.

70.  Mr Liu refers to the TRC regime, including the issue of interest, as was explained by Chow J (as Chow JA then was) in the Dairyfarm case (see above). He points to the fact that the Court noted that the glaring disparities in the interest payable by the Commissioner and taxpayer was authorised by legislation and had to be accepted as lawful and binding.

71.  But, in any event, Mr Liu says the issue of interest has not arisen in the present case where there has been no final determination of the appeal, and the Court should not make any hypothetical ruling or give an advisory opinion on the issue of interest depending on the different possible outcomes of the appeal.

72.  As to what is meant by “final determination of the objection or appeal”, Mr Liu submits that the objection and appeal are not two completely separate processes, but rather different stages of the same process in which the original assessment of tax is challenged and resolved under part 11 of the IRO. In support of that submission, Mr Liu refers to Suen Hung Shan v Commissioner of Inland Revenue [2021] 1 HKLRD 1084 at §§35-51, where Kwan VP pointed out that:

(1)  Part 11 provides for the procedures for a taxpayer to challenge an assessment on different stages.

(2)  The first stage is an objection to the Commissioner under section 64.

(3)  The second stage is, where the Commissioner fails to agree with the taxpayer, the taxpayer may appeal to the Board under section 66.

(4)  The third stage is, where an appeal under section 66 has been heard by the Board, which has made a decision under section 68, the taxpayer or Commissioner may appeal to the Court of First Instance under section 69, on a ground involving only a question of law.

(5)  Section 70 of the IRO provides for the situations in which an assessment is regarded as final and conclusive for all purposes of the IRO.

(6)  Section 70 also makes a clear differentiation between the situation where no valid objection or appeal has been lodged within the time limited, and the situation where there is a determination on an objection or appeal that has been lodged within time.

73.  So, Mr Liu submits, properly construed on ordinary well-established principles of statutory construction, it would not be correct to view the objection and appeal as two separate processes such that there could be a “final determination of the objection” and a “final determination of the appeal”. Indeed, the phrase “final determination of [an/the] objection or appeal” appears seven times in section 71 of the IRO and should be consistently construed. But the Applicant’s construction would unnecessarily entail payments and repayments and calculations and re-calculations throughout the statutory procedure where the tax dispute has not really come to a final end.

74.  Mr Liu submits that what is to be borne in mind is that the purpose of the statutory procedure is to ascertain the correctness of the assessment for all purposes of the IRO: see section 70. The question of finality depends on whether there is a valid objection or appeal, and whether the objection or appeal is withdrawn or determined. Finality is achieved at the stage of the procedure at which the dispute has been disposed of conclusively and finally.

75.  Where there is a pending appeal, the determination appealed against is not a final one. Reading together sections 70 and 71, the “final determination of an objection or appeal” refers to the stage at the end of which there is or can be no further appeal: see also Koo Ming Kown v Commissioner of Inland Revenue [2018] HKCFI 2593 at §§71-74. “Final” simply means “at the end”, and “conclusive” means no more than that the decision made is binding as between the parties.

76.  This is why, Mr Liu submits, the amount of the TRC relating to the year of assessment 2011/2012 was refunded, because the tax dispute over that assessment was finally resolved at the objection stage, there being no further appeal to the Board. But the position is not the same for the years of assessment in the Relevant Period, because there is an outstanding appeal.

F.3  Court’s Analysis

77.  Notwithstanding the complexity of some of the argument, it seems to me that the correct analysis is ultimately rather straightforward.

78.  The complexity in argument arises in part from something of the failure of the competing contentions to meet head-on, or perhaps to address the real determinative question:

(1)  Mr Mariani’s primary case is that, because there has been a “final determination” of the Objections, the TRCs must be dealt with under section 71(7)(d) on that basis – and there is neither the need nor even the ability to await the outcome of the appeal. That argument depends upon his proffered interpretation of the phrase “final determination of the objection or appeal” found in that section. It leads to Mr Mariani’s submission that once the Objections have been dealt with in the Determination, the Commissioner must redeem (or repurchase or refund) the relevant part of the TRCs at that point.

(2)  Mr Liu’s primary case is that, because of the proper interpretation of the phrase “final determination of the objection or appeal” in section 71(7)(c) and (d), the Commissioner has no power to do anything with the TRCs until after the outcome of the appeal (and any further appeal through the Courts). It leads to Mr Liu’s submission that notwithstanding that the Objections have been dealt with in the Determination, the Commissioner must not redeem or otherwise deal with the TRCs.

(3)  But both of those primary submissions revolve around an argument as to when the Commissioner either must or must not (as the case may be) exercise the powers granted in section 71(7)(c) and (d), to accept the TRC as payment of tax and/or to redeem any amount in excess of that assessed to tax.

79.  But, it may be that the real point in contention between the parties relates to a different matter: not to the time at which the powers in section 71(7)(c) and (d) must or must not be exercised as regards any TRC as is in place, but rather to as to what can happen to a TRC at an earlier point before the time (whenever that is) when the powers under section 71(7)(c) and (d) can/must be exercised.

80.  In other words, the real determinative questions in this case are (a) whether a holdover order can be varied, and (b) whether a TRC once purchased is immutable or inviolate until the time (whenever that is) that the powers under section 71(7)(c) and (d) can/must be exercised.

81.  To focus on the more straightforward approach, it is nevertheless helpful to look first at the contest as to the proper interpretation of the phrase “final determination of the objection or appeal” found in section 71(7)(c) and (d) of the IRO. In my view, that phrase clearly identifies the single endpoint of the process potentially comprising an objection and an appeal under Part 11 of the IRO. This means the single endpoint of the objection (if there is no valid appeal) or the objection and the appeal (if there is a valid appeal). This is because:

(1)  the use of the word “final” identifies that the relevant determination is the last determination;

(2)  the determination of an objection is not the “final determination” if there is an appeal;

(3)  that is also made clear by the word “withdrawal” where it appears in the compound phrase “withdrawal or final determination of the objection or appeal”;

(4)  hence, the “withdrawal” of an objection brings the process to an end, similarly the “withdrawal” of an appeal brings the process to an end – i.e. reaches finality;

(5)  but the determination of an objection does not bring the process to an end – i.e. does not reach finality – if there is an appeal, unless and until the appeal is withdrawn, settled or finally determined;

(6)  the use of the phrases “withdrawal or final determination of the objection or appeal” and “final determination of the objection or appeal” within section 71 consistently identify the endpoint of the process, at which point the material assessment is made final and the amount of tax which is to be paid is known, and it is also known what should now be paid even if previously held over – see section 71(4), section 71(9)(f) and section 71(10);

(7)  under section 71(7)(c) and (d), what is to happen at the point of “final determination of the objection or appeal” is that the TRC will be used and accepted as payment of tax, and any excess refunded;

(8)  logically, that would occur at only one point of time, and not on an ongoing and potentially varying basis;

(9)  this is also consistent with the meaning of “final and conclusive” in section 70.

82.  Once that is understood, it can be taken into the remainder of the legal framework before applying that context to the facts of the case:

(1)  The starting point is that, after making an assessment, the Commissioner shall give a notice of assessment to the person assessed, stating (a) the amount assessed, (b) the amount of tax charged, and (c) the due date fixed for payment of the tax charged: see section 62(1).

(2)  The tax charged shall be paid in the manner directed in the notice of assessment on or before the date fixed by the Commissioner and specified in the notice of assessment: see section 71(1).

(3)  A person aggrieved by an assessment may object to it: see section 64(1).

(4)  The Commissioner shall consider any valid objection and may confirm, reduce, increase or annul the assessment objected to: see section 64(2).

(5)  If the Commissioner agrees with the person (who has validly objected to the assessment) as to the amount at which that person is liable to be assessed, any necessary adjustment of the assessment shall be made: see section 64(3).

(6)  If the Commissioner fails to agree with the person (who has validly objected to the assessment assessed) as to the amount at which that person is liable to be assessed, he must give a reasoned determination and a statement of facts upon which the determination was arrived at: see section 64(4).

(7)  A person who has validly objected to an assessment but with whom the Commissioner in considering the objection has failed to agree may appeal from the determination to the Board: see section 64(4) and section 66(1).

(8)  The process of any objection and/or appeal as regards an assessment reaches finality when there is no further step in that process which is being or can be taken: see section 70.

(9)  Therefore, finality is reached at the point in time, whichever is the later, when:

(a)  there is no valid objection;

(b)  there has been determination of an objection, and either: (i) the amount at which the person is liable to be assessed is agreed between the Commissioner and that person, or (ii) there is no valid appeal from the determination;

(c)  the appeal from a determination of an objection has been withdrawn;

(d)  the appeal has been dismissed as a result of the appellant’s failure to attend the hearing of the appeal;

(e)  the appellant and the Commissioner have reached a settlement, endorsed by the Board, as to the amount at which the appellant is liable to be assessed;

(f)  the assessment has been made by the Board on the appeal;

(g)  the assessment has been made by the Court.

(10)  Indeed, the design of the objections and appeals process under Part 11 of the IRO is to reach the point where it can be said that the relevant assessment is final and conclusive under section 70.

(11)  Notwithstanding any notice of objection or appeal, the tax charged shall be paid unless the Commissioner orders that payment of the tax or part of it be held over pending the result of the objection or appeal: see section 71(2).

(12)  Tax held over under section 71(2) becomes payable on the final determination of an objection or appeal under Part 11, and the tax shall be paid on or before the date then fixed by a notice in writing given at that time: see section 71(4).

(13)  The order holding over payment of tax may be made conditional upon the person who objects or appeals providing security either (a) by purchasing a TRC or (b) by furnishing a banker’s undertaking: see section 71(2).

(14)  Any TRC required as a condition to holding over payment of tax must be purchased by the later of (a) 14 days from the holdover order or (b) the date for the payment of tax specified in the notice of assessment: see section 71(7)(a).

(15)  What happens to the purchased TRC in place depends upon what happens at the final point of the process of objection and/or or appeal: see section 71(7)(c)-(e).

(16)  If and when the relevant objection or appeal is withdrawn, that brings finality to the Part 11 process and the TRC shall be accepted by the Commissioner in payment of the tax held over or so much of it as becomes payable, and no interest shall be payable upon any TRC or part of a TRC so accepted: see section 71(7)(c).

(17)  If and when the process of objection or appeal reaches final determination, that brings finality to the Part 11 process and the TRC shall be accepted by the Commissioner in payment of the tax held over or so much of it as becomes payable, and no interest shall be payable upon any TRC or part of a TRC so accepted: see section 71(7)(c).

(18)  It makes little sense to think that the TRC might be accepted in payment of tax when the amount of tax payable is still at large, and before the process has reached the endpoint of withdrawal or agreement or final determination as to how much tax is to be paid by means of acceptance of the TRC.

(19)  Where, after all tax held over which has become or has been found to be payable has been paid by the acceptance of the TRC, and there is any TRC or part of a TRC which has not been accepted as payment by the Commissioner in payment of tax which has become or been found payable, then the Commissioner must repay to the holder of the TRC (i) the principal value represented by the TRC or the part of the TRC, and (ii) the interest on that value, calculated in accordance with the rules from the date of issue of the TRC to the date of the final determination of the objection or appeal: see section 71(7)(d)

(20)  No TRC purchased shall be valid for any purpose except as specified in the preceding paragraphs: see section 71(7)(e).

83.  Applying that legal framework to the facts of the present case:

(1)  The Commissioner gave a notice of assessment to the Applicant, stating (a) the amount assessed, (b) the amount of tax charged, and (c) the due date fixed for payment of the tax charged.

(2)  The tax charged included the Excess Amount.

(3)  The tax charged, including the Excess Amount, was to be paid on or before the date specified in the notice of assessment.

(4)  The Applicant was aggrieved by the assessment and objected to it by filing the Objection.

(5)  The Commissioner considered the Objection and by his Determination reduced the assessment objected to.

(6)  But the Commissioner did not agree with the Applicant as to the amount at which the Applicant is liable to be assessed, because the Applicant said it should be ‘nil’.

(7)  There was, therefore, no necessary agreed adjustment of the original assessment (and it does not matter that it might be said that the Commissioner by the Determination agreed that some of the amount previously assessed should be reduced).

(8)  Because the Commissioner did not agree with the Applicant as to the amount at which the Applicant is liable to be assessed, he gave the reasoned Determination.

(9)  The Applicant therefore could, and did, appeal from the Determination (and so appeal against the assessment) to the Board.

(10)  The process of any objection and/or appeal as regards the assessment has not reached finality, because there is at least one further step in that process which is being taken.

(11)  Therefore, the point has not been reached where it can be said that the relevant assessment is final and conclusive.

(12)  Notwithstanding the Objection and subsequent appeal, the tax charged still fell to be paid unless the Commissioner were to order that payment of tax or part of it be held over pending the result of the objection or appeal.

(13)  The Commissioner did make an order holding over payment of tax, but the order was made conditional upon the Applicant providing security by purchasing TRCs.

(14)  The TRCs purchased were purchased by reference to the amount of tax charged in the original assessment, pre-dating the consideration of the Objection by the Determination.

(15)  The tax as held over has not become payable, as there is as yet no final determination under Part 11, and no date has been fixed by a notice in writing specifying the date by which to pay.

(16)  What is to happen to the purchased TRC and in place depends upon what happens at the final point of the process of objection and/or or appeal.

(17)  If the appeal is withdrawn, or there is an endorsed settlement, that would bring finality to the Part 11 process and the TRC would be accepted by the Commissioner in payment of the tax held over or so much of it as becomes payable, and no interest would be payable upon the TRC or part of it so accepted.

(18)  If the appeal reaches final determination (including after any appellate steps in the Courts), that would bring finality to the Part 11 process and the TRC would be accepted by the Commissioner in payment of the tax held over or so much of it as becomes payable, and no interest would be payable upon the TRC or part of it so accepted.

(19)  Once all tax held over which has become or has been found to be payable has been paid by the acceptance of the TRC, and if there is any TRC or part of a TRC which has not been accepted as payment by the Commissioner in payment of tax which has become or been found payable, the Commissioner will have to repay to the Applicant (i) the principal value represented by the TRC or the part of the TRC, and (ii) the interest on that value, calculated in accordance with the rules from the date of issue of the TRC to the date of the final determination of the objection or appeal.

84.  That final position has not been reached. Unless and until the appeal is withdrawn or settled or finally determined, the original assessment in the amount including the Excess Amount remains in place (even if the Commissioner will not be seeking to uphold the full original assessment on the argument at the appeal).

85.  Therefore, it is incorrect to say that the Commissioner must redeem or refund the TRCs up to the amount of the Excess Amount.

86.  But that is not the end of the analysis. This is because the Commissioner now correctly accepts that he has the power to vary or amend the basis of the holdover orders, including as to the conditions imposed. An express power can be found in section 71(3), and further (implied) powers are to be found in section 46 of the IGCO.

87.  Mr Mariani’s position must also be that the Commissioner has power to vary a holdover order made under section 71(2) even though a “final determination” has not yet been reached. This is because the Applicant’s second ground of review – irrationality – must be predicated on the assertion that the Commissioner does have the power to vary his original holdover order.

88.  The relevant power is that the Commissioner may cancel, suspend, amend or substitute any holdover order made, and make such fresh or amended or substituting order as the case may appear to him to require. But that is a discretionary power. Any challenge to the exercise of that power would have to be on conventional administrative law grounds.

F.4  Conclusion on Illegality

89.  Therefore, on the chronology in this case, and though the reasons originally given for the Refusal were incorrect or focused on the wrong point, it was not illegal or contrary to the IRO for the Commissioner to refuse to exercise his powers under section 71(7)(c) and (d) to repay or refund the Excess Amount, and any interest accruing on it. For the avoidance of any doubt, I would make clear my view that the same approach logically applies both to the principal of the Excess Amount and to any interest.

90.  On the other hand, it would also not have been illegal for the matter to have been dealt with by changing the basis of the holdover orders in some way, such that holding over of tax in the amount of the Excess Amount is made unconditional. This is what the Commissioner has proposed, and it seems to me that it is open to him in the exercise of his discretion to take that step.

91.  Though the conclusion might be thought to give rise to some potential ‘unfairness’, that seems to me to be the correct conclusion on the proper statutory interpretation of the material provisions as a whole. It is notorious that tax legislation does not have to comply with what might generally be regarded as in accordance with fairness or equity. Nor does any such notion influence the proper approach to statutory interpretation in this case. Anyway, it is not inherently unfair for the TRC to act as security to abide the final result of the assessment to tax, including the any process of objection or appeal.

92.  Any impact of perceived unfairness in any given case would have to be remedied, if appropriate, under a different ground of public law. It is, therefore, appropriate to turn to the Applicant’s second ground.

G.  Irrationality

G.1  Applicant’s Argument

93.  The doctrine of irrationality or Wednesbury unreasonableness is well-settled, and it does not require lengthy elucidation, or citation of authority.

94.  A decision is Wednesbury unreasonable if a decision-maker fails to consider matters which he is bound to consider, or fails to exclude matters which are irrelevant, or if the decision is so unreasonable that no reasonable authority could ever have come to it. Where a factor can properly be taken into account, what weight is to be given to it is a matter for the decision-maker, but what fact he is bound to take into account for the relevant purpose is determined by construing the statute conferring the power. Wednesbury unreasonableness is assessed against the ultimate decision made, determining whether any analytical defects, legal or otherwise, are sufficiently serious to render the decision so unreasonable as justifies judicial interference.

95.  Mr Mariani submits that, because the Commissioner was empowered to hold over tax assessed subject to the holdover orders, he may unmake or otherwise amend such orders to the degree necessary to reflect the amount of tax that is actually in dispute between the parties following the Determination. He refers in particular to section 46 of the IGCO.

96.  Further, he submits that where the legislative object and intent of section 71 is to secure the flow of public revenue and to facilitate the collection of tax assessed in accordance with the IRO, there is no principled basis on which the Commissioner can choose to exercise (or not exercise) any discretion or power with which he is invested under any enactment so as to retain the Excess Amount. By the Determination, Mr Mariani says, the Commissioner has himself conceded that the money belongs to the Applicant.

97.  Mr Mariani submits that the retention of the Excess Amount by the Commissioner entails gross prejudice to the Applicant, and bestows no proper advantage on the Commissioner or the public purse. Hence the retention is Wednesbury unreasonable.

G.2  Commissioner’s Argument

98.  As already indicated, Mr Liu argues that the Commissioner’s agreement to repay or refund the Excess Amount disposes of the argument on irrationality. He further says that as a result, the question of interest is purely hypothetical or academic.

99.  I do not think Mr Liu has conceded that the Commissioner’s agreement to refund is an acceptance that not to do so would be irrational. But the agreement to refund must at least be thought to be the rational response to the Applicant’s current situation.

G.3  Court’s Analysis

100.  It seems to me to be necessary to decide the irrationality ground, despite the Commissioner’s agreement to repay the principal of the Excess Amount, not least because of the refusal to pay the interest. Indeed, again, it seems to me to be logical that the approach to the principal and interest is the same. For that reason, I do not think the fact that the Form 86 does not specifically seek payment of interest matters, where the principal and interest stand or fall together.

101.  I also reject the suggestion that the question of interest is premature and/or academic. The relatively small amount of interest involved in this case is the result of the low rate applicable, and that does not make the point academic.

102.  Crucially, the Determination of the Objection in this case led to the Commissioner’s view as reflected in the Determination that tax in the amount of the Excess Amount is simply not payable. At least as things stand, on the appeal the Commissioner will not be arguing anything different.

103.  It is, of course, correct that under section 68(8)(a) the Board is entitled to and might increase the assessment appealed against to an amount higher than the amount for which the Commissioner himself contends – a possibility also seen from the terms of section 71(4). But, on the basis of the assessment found in the Determination, the Commissioner currently thinks that to seek to charge the Excess Amount as tax would simply be wrong. In any event, it would only become tax payable if, and from the point in time when, the Board were to increase the assessment of the tax payable.

104.  If the original assessor had in the first place taken the same view as the Commissioner did in the Determination, the amount of tax in the notices of assessment for the Relevant Period would not have included the Excess Amount. On that basis, though the Applicant would undoubtedly have objected to the assessment – because the Applicant says that it should not pay any tax at all – there would have been no question of requiring any TRC in the amount of the Excess Amount, as there would have been no tax charged in that amount potentially the subject of a holdover order, conditional or otherwise.

105.  Now that the Commissioner’s opinion is to be taken as standing in substitution of the assessor’s opinion, it seems to be obviously irrational or Wednesbury unreasonable for the Commissioner to seek to retain the funds used to purchase that part of the TRC’s relating to the Excess Amount.

106.  The Commissioner, through Mr Liu, correctly accepts that section 46 of the IGCO permits him to make the necessary amendment to his previous holdover order, and I think it would be irrational not to make the amendment which is necessary.

107.  Further, the logical extension of that point is that the Commissioner is currently accepting that he should never have had those funds in the amount of the Excess Amount. In so far as those funds have accrued interest whilst the Commissioner has held them, it seems obviously irrational for the Commissioner not to return or refund that interest at the same time as returning or refunding the principal.

108.  That seems to me to be the only way rationally to put the parties back into the position they would otherwise have been in. That would, in effect, treat the holdover of the Excess Amount as having been on an unconditional basis from the first making of the Objections. If, at some subsequent point in the appeal process, the Applicant is assessed to tax in an amount greater than is currently secured, that is simply the result of the process – and is the same as would happen in any other similar case. In such circumstances, the IRO already provides for the appropriate means of collecting the greater amount and any relevant interest.

G.4  Conclusion on Irrationality

109.  Not to refund the Excess Amount and the accrued interest together would in the circumstances of this case be irrational/Wednesbury unreasonable.

H.  Result

110.  The open offer made by the Commissioner has not been accepted by the Applicant. In those circumstances, and despite the fact that the Commissioner has made the open offer to refund (only) the principal sum of the Excess Amount, it seems to me in the exercise of my discretion that the Applicant is entitled to relief.

111.  In those circumstances, I grant the following orders:

(1)  a declaration that the Refusal was unreasonable and/or irrational; and

(2)  an order of mandamus requiring the Commissioner to vary the terms of the holdover orders and within 21 days to refund to the Applicant the principal sum of the Excess Amount together with the interest on that sum, calculated in accordance with the rules from the date of issue of the TRC to the date of the refund being made.

112.  As to costs, though I have found in favour of the Commissioner on much of his offered interpretation of the relevant provisions in the IRO, I have in effect granted the Applicant the substance of the relief sought in the Form 86. On that basis, it seems to me that I should reserve the question of costs to further argument.

113.  I will deal with the questions of costs on paper. The Applicant should file its costs submissions within 14 days, and the Commissioner should file his costs submissions within 14 days thereafter. I will then determine the question of costs without any further submissions, unless otherwise ordered by me.