RE MR DAVID GOLDBERG QC

HCMP 1355/2021

[2021] HKCFI 3868

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1355 OF 2021

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J U D G M E N T

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1.  This is the application by Mr David Goldberg, QC, for ad hoc admission under section 27(4) of the Legal Practitioners Ordinance, Cap 159, for the purposes of advising, preparing and appearing for China Mobile Hong Kong Company Limited, the appellant in CACV 500/2020, and ancillary interlocutory application or related matters. The application is opposed by both the Hong Kong Bar Association and the Secretary for Justice.

A.     Underlying proceedings

2.  CACV 500/2020 is an appeal from the judgment of Chow J (as he then was) in China Mobile Hong Kong Company Limited v Commissioner of Inland Revenue [2020] HKCFI 1649.  A useful summary of the background facts can be found in the Judge’s judgment granting the appellant leave to appeal in [2018] 2 HKLRD 146, which I will respectfully adopt:

“4. The Taxpayer (i.e. the appellant) is a mobile telecommunications and related services provider. Over the years, it has been granted various licences to operate mobile telecommunications services in Hong Kong. It uses certain frequency bands on the radio spectrum in its day-to-day provision of services to its customers, from which it derives income which is assessable to profits tax in Hong Kong.

5. In December 2007, the Telecommunications Authority (‘TA’) proposed to allocate some frequency bands for the provision of broadband wireless access services. An auction (‘the 4G Auction’) of radio spectrum for the provision of 4G broadband wireless access services would be held, and the use of, or the right to use, the frequency bands would be subject to the payment of an one-off upfront lump sum spectrum utilisation fees (‘Upfront SUF’), the amount of which was to be determined by the highest valid bid for the frequency bands in the auction.

6. In 2008, the TA further proposed to make available certain frequency bands to incumbent 2G licensees, of which the Taxpayer was one. An auction (‘the 2G Auction’) would be conducted for the assignment of additional 2G frequency bands to the incumbent 2G licensees, and the use of, or the right to use, the frequency bands would be subject to the payment of SUFs consisting of (i) annual payments determined by reference to network turnover or the bandwidth assigned (whichever is higher), and (ii) an upfront payment determined by the highest valid bid for the relevant frequency bands in the auction.

7. The 4G Auction was completed on 22 January 2009. The Taxpayer was the successful bidder of one of the frequency bands. The Upfront SUF payable by the Taxpayer was in the lump sum of HK$494,700,000.

8. The Taxpayer was also the successful bidder of two of the frequency bands at the 2G Auction, which was completed on 10 June 2009. The Upfront SUFs payable by the Taxpayer were in the total sum of HK$15,120,000.

9. The aforesaid Upfront SUFs were paid, or treated as paid (by set-off), in 2009. In its audited financial statements for the years ended 31 December 2009 to 2011, the Taxpayer classified the Upfront SUFs as Non-Current Intangible Assets and amortised them on a straight-line basis over the relevant licence periods.

10. The Assessor opined that the Upfront SUFs were capital expenditures, and disallowed the deduction of amortisation charges on the Upfront SUFs. Accordingly, he raised on the Taxpayer additional profits tax assessments for the years of assessment 2009/10 to 2011/12 (‘the Assessments’). The Assessments were confirmed by the Deputy Commissioner of Inland Revenue on 30 December 2014.

11. The Taxpayer’s appeal against the decision of the Deputy Commissioner was dismissed by the Board, which held that the Upfront SUFs were capital in nature. The Board took the view, inter alia, that:-

(1) the subject matter of each of the 4G Auction and the 2G Auction was the granting of the relevant unified carrier licence (‘UCL’), together with the right to use the specified frequency bands; and

(2) by paying the Upfront SUFs, the Taxpayer acquired the exclusive right to use the assigned spectrum for a period of about 12 years under the amended 2G UCL and 15 years under the 4G UCL without the interference of other mobile telecommunications operators in the market (see paragraph 58 of the Board’s Decision).”

3.  The Judge upheld the Board’s decision.  Although the appellant has raised numerous grounds of appeal, the principal issue remains whether the Upfront SUFs were capital or revenue in nature.  If the former, they can be deducted from the appellant’s profits tax liability: sections 16 and 17(1)(c) of the Inland Revenue Ordinance, Cap 112.  If the latter, they cannot.

B.     Applicable principles

4.  The principles applicable to ad hoc admissions are well settled.  I do not intend to repeat them here.  See Re Perry QC [2016] 2 HKLRD 647, per McWalters JA at [24]-[26] for a helpful summary.  The overarching question is whether it is in the public interest to admit an overseas counsel who seeks ad hoc admission.

C.     The present application

5.  It is not in dispute that the applicant is a leading expert in tax law and has advised and appeared in landmark tax litigations both in the United Kingdom and Hong Kong.  He is well-known and highly regarded in both jurisdictions.

6.  The main differences dividing the parties are:

(1)  whether the appeal involves issues of unusual difficulty or complexity; and

(2)  whether the applicant will add a significant dimension to the appeal.

I will deal with them in turn.

C1.    Unusual difficulty or complexity

7.  Whether a payment is capital or revenue in nature is a question of law.  The general principles for making the determination are well established.  Briefly, a payment for the acquisition of a right is classified as a capital, whereas a payment for the use of the matter to generate income is classified as revenue.  There is no decisive test and the question has to be approached by applying common sense from a practical and business point of views having regard to all relevant features of the case.  Useful indicia in answering the question have been developed by the authorities: see [2020] HKCFI 1649, at [17]-[18].

8.  However, the fact that the principles are well settled does not necessarily mean that applying them to the facts should not involve questions of unusual difficulty or complexity: Re Rose QC and Carss-Frisk QC, HCMP 350/2017 & HCMP 415/2017, 5 April 2017, unreported, per Kwan JA (as she then was) at [19].  If the application of the law to the facts makes the case particularly difficult and complex, overseas specialist counsel may justifiably be admitted: Re McGregor QC [2003] 3 HKLRD 585, per Ma JA (as he then was) at [18].

9.  Relevantly, in Re Goy QC [2007] 5 HKC 384, the applicant sought admission for an appeal concerning the issues of the source of profits and whether they were taxable, which involved a common sense practical business approach having regard to all the circumstances, with no single decisive or universal test.  In allowing the application, Ma CJHC (as he then was) at [10] rejected the objection that the appeal would not involve any critical review of established cases but mainly issues of fact and application of established principles to the facts.

10.  Here, I agree with the submissions of Mr Stewart Wong SC, for the applicant, that whether the SUFs are capital or revenue in nature is a question of unusual difficulty and complexity.  It involves the proper construction of the relevant provisions of the Telecommunications Ordinance, Cap 106, in the context of the appellant’s income generating process, the mechanism of fixing the SUFs, the method of calculation, the manner of payment, and whether SUFs can be regarded as fixed or circulating capital.  It is highly desirable to have the benefit of specialist counsel who possesses deep knowledge of the concept and the nature of capital and revenue and vast experience in this field.

C2.    Significant dimension to be added by the applicant

11.  Given the applicant’s substantial experience and expertise, I am satisfied that he can definitely add a significant dimension to the appeal, although the appellant has already engaged a specialist team of local counsel.

12.  Mr Jonathan Chang SC, for the Bar and Ms Ebony Ling, for the Secretary submitted that the applicant’s input can be sought and obtained via other means, such as internet, whilst leaving the actual advocacy to be done by local counsel. However, in light of the particular difficulty and complexity involved, I do not consider it desirable to limit the applicant’s involvement in such a way. The Court of Appeal will be best assisted by the applicant’s oral advocacy as well as his written submissions.

C3.    Other considerations

13.  There are two additional reasons why it is in the public interest to admit the applicant:

(1)  The issue of deductibility of SUFs concerns not only the appellant but also other mobile network operators.  The outcome of the appeal thus would have an industry-wide implication.

(2)  Because of the significant amounts involved, the importance of the issues on the present and future operation of the appellant, and the impact on the mobile telecommunications industry generally, the case will very likely end up in the Court of Final Appeal.

D.     Conclusion

14.  In consequence, the application is allowed.