(1) All Hong Kong profits tax returns, computations, notices of assessments (including revised, additional assessments and
notices for provisional payment of taxes), and copies of all correspondence between the IRD and Smart-HK for the past
seven years. This information would enable us to obtain the overall tax position of the company and the level to which
such tax positions have been accepted by the IRD. Seven years’ records are required because the IRD has the authority
to re-open the assessment for any year within six years. Therefore, any assessment within this statutory time limit carries
the same risk. Moreover, Smart-HK is also obliged under the tax law to maintain a good record of its business for not
less than seven years.
(2) By reviewing the tax computations and assessments issued, the nature of tax adjustments made by the IRD would give
an indication of the extent of the tax aggressiveness of Smart-HK in dealing with the IRD. More importantly, it would
help assess the level of adequacy of the company’s tax provisions made to date. Excessive understatement (and/or
overstatement) of tax provisions may have significant implications for the acquisition value of the company.
(3) The records of correspondence with the IRD would indicate whether there is any outstanding dispute or objection with
the IRD, or appeal to the Board of Review or even the courts. If so, the issue in dispute and the possible outcome would
need to be further assessed. Moreover, details of prior years’ legal and professional fees would help reveal whether there
are any undisclosed tax disputes.
(4) Copies of correspondence with all tax consultants engaged by Smart-HK may help to explain the mode of operation of
Smart-HK, especially the role played by Smart-PRC. This is required in order to provide a defence against any future
challenge from the IRD on the offshore claim for the fee under the PRC contracts.
(5) Copies of contracts, licence agreements and documentation supporting the basis of charge between Smart-HK and other
associates. These are important documents to substantiate the inter-company transactions in the case of challenge by
the IRD.
(6) Any other reporting documents and tax payment proof, if any, filed with or issued by the local tax authorities in both the
PRC and Singapore for transactions between Smart-HK and its associates. These documents may relate to, amongst
others, the PRC withholding tax paid, if any, on the dividend paid from Smart-PRC, Singapore withholding tax paid, if
any, on the royalty from Smart-Singapore, foreign exchange clearance of funds remitted into and out of the PRC or
Singapore, etc. These are required to assess whether, and to what extent, Smart-HK is in compliance with the foreign
tax requirements.
(7) Any records and information, including employers’ returns filed with the IRD, to prove that Smart-HK has fully complied
with the employer’s reporting obligations in respect of its employees. If reporting has been made to the PRC tax authority
in respect of the trainers sent to support Smart-PRC, all related information should also be reviewed.
17The above observations are drawn based on the information provided, but it is considered that other relevant information is
required to enable us to assess the tax position of Smart-HK in further detail. Please help collate the information as mentioned
above for our further review. Should there be any questions regarding the above, we are pleased to meet with you and explain
in greater detail.
End of Report
