Review/Investigation Evaluation Method – Indirect Asset Addition Analysis Method and Search Materials

All along, the Inland Revenue Department has set detailed requirements for taxpayers’ companies in keeping records. If the books and records kept by the taxpayer are proper, the IRD staff only need to use the direct assessment method to assess the income. The IRS staff can know if there are any unreported transactions by comparing the information reported by the taxpayer on the tax return with the income/expenses recorded on the account statement.

The other is often used when there is a lack of records in the books, one of which is the asset increase analysis method. The formula for this analysis is net asset value growth plus disallowed expenses minus taxable income. Net asset value is total assets minus total liabilities. The total is not the market value but the current amount. The asset growth analysis method will still be applied to salaries tax to assess underreported income.

Assets include stocks, properties, private cars, bank accounts, etc. owned by the taxpayer and his/her spouse… and personal liabilities include bank and personal debts of the taxpayer and his/her spouse. A proprietor of a business includes the assets and liabilities of the business. The partner includes his capital and the amount of the loan. As for the company’s shareholders, it is his share capital, current account, and loan amount.

Inland Revenue Department staff will also use the asset increase analysis method to analyze in detail the taxpayer’s deposit account, company current account, and loan account, showing the bank accounts of the deposit or withdrawal amount and the accounts of immediate family members. Inland Revenue Department staff will also obtain information on assets and liabilities from:

1. The taxpayer’s accounts, the content of the first meeting with the taxpayer

2. Other government departments such as Land Registry, Companies Registry, Transport Department, Immigration Department, etc…

3. Internet search for relevant information such as web pages or price enquiries

4. Internal information such as computer inquiries, documents from other departments, connection to computer systems, etc…

5. Other relevant persons such as accountants, lawyers, brokers, employers, employees, customers, or suppliers

The above information is for reference only. If in doubt, we welcome your tax enquiries.