How far back can the Hong Kong IRD audit my company?

Field audit. The Inland Revenue Department (IRD) checks that returns and accounts are correct, often by examining books and records on site. Where it finds underpaid tax, it can raise additional assessments under section 60 of the Ordinance and consider penalties.

Practice - look-back period (IRD). According to the IRD's practice note on field audit and investigation:

• An investigation of suspected evasion normally covers the 6 years of assessment prior to the year in which it begins.
• In a case of fraud or wilful evasion, it covers 10 years of assessment.

Law - the statute. Under section 60 the IRD can assess, or raise an additional assessment, within six years after the end of the year of assessment. Where the shortfall is due to fraud or wilful evasion the period is 10 years. The Ordinance also requires business records to be kept for at least 7 years.

Penalties. Additional tax under section 82A can reach three times the tax undercharged; in field audit cases the IRD's policy uses a graded scale depending on how fully and promptly you disclose.

What helps

• Keep complete business records (at least 7 years).
• Respond to the IRD's requests on time and through your tax representative.
• If you find a mistake, tell the IRD promptly; prompt, full disclosure is treated more favourably.

An audit by the IRD is separate from the statutory audit of your accounts.