Hong Kong Tax Alert: 2 January 2013

Aviation Fuel Supply Company v CIR

Was compensation payment capital or revenue in nature?

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In early December, the Court of Appeal (CA) upheld the lower court’s decision that a lump-sum contractual payment of approximately US$450 million was a non-taxable capital sum.

As yet, the Commissioner of Inland Revenue has not indicated whether he will appeal the decision to the Court of Final Appeal. In the meantime, clients evaluating capital versus revenue arguments surrounding compensation payments, contractual or otherwise, should seek professional tax advice where appropriate.

In this issue, we discuss whether the sum was capital or revenue in nature via the following topics: