Global Tax Alert | 7 March 2014

Hong Kong IRD announces that taxpayers can continue to adopt a mark-to-market basis for 2013-14 profits tax returns

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In the judgment of Nice Cheer Investment Limited (FACV 23/2012) handed down by the Court of Final Appeal (CFA) in November 2013,1 the CFA held that year-end mark-to-market unrealized revaluation gains in respect of listed securities held for sale were not taxable in Hong Kong while the deductibility of unrealized losses may in some instances still be unclear.

As the CFA judgment in Nice Cheer is now part of the tax law in Hong Kong, some taxpayers have expressed their desire to continue to be taxed based on the gains or losses as reflected in the financial statements, regardless of whether such gains or losses are realized or unrealized for tax purposes.

On 4 March 2014, in response to these requests, the Inland Revenue Department (IRD) posted on its website that the Government is now considering whether the law should be changed to allow taxpayers to continue to adopt the mark-to-market basis when filing their tax returns subsequent to the Nice Cheer judgment. As an interim administrative measure, the IRD announced that it will accept 2013-14 profits tax returns in which the taxable gains2 are computed on a mark-to-market fair value basis.

Furthermore, the IRD would agree to recompute the 2013-14 taxable gain2 based on a fair value basis if the taxpayer subsequently adopts the realization basis as held in the Nice Cheer judgment. However, any request for recomputation should be made within the time limits3 pursuant to sections 60 or 70A of the Inland Revenue Ordinance.


1. For more details, see EY Global Tax Alert, Hong Kong Court of Final Appeal rules unrealized revaluation gains on listed securities held for sale as nontaxable, dated 18 November 2013.

2. In Hong Kong, it is referred to assessable profits.

3. For a correction to be made, the taxpayer must lodge an application within six years after the end of the relevant year of assessment or within six months after the date on which the relative notice of assessment was received, whichever is the later.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong
  • Tracy Ho
    +852 2846 9065
  • Florence Chan (Financial Services)
    +852 2849 9228
Ernst & Young LLP, Hong Kong Desk, New York
  • Connie Chan
    +1 212 773 2661
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816

EYG no. CM4235