Disclosure Requirements of Commission Payments in Profits Tax Return
Section 16(1) of the Inland Revenue Ordinance provides that outgoings and expenses incurred in the production of assessable profits are deductible for profits tax purposes. Commissions, rebates and discounts will qualify for deductible if they satisfy the condition. On the other hand, taxpayer required to disclose certain information ascertain the deductibility of commissions, rebates and discounts.
Following disclosure is required when filing profits tax returns:
(a) instead of showing the income net of commissions, rebates and discounts, taxpayers should return the gross income and clearly distinguish the payment of commissions, rebates and discounts in the accounts and tax computations submitted in support of profits tax returns;
(b) the following information should be disclosed for each payment:
- full name, address and identity card number or business registration number of the recipient;
- whether the recipient has any relationship with the taxpayer;
- amount of the payment;
- details of services rendered; and preferably
- evidence of payment.
Consequence of non-disclosure
Where taxpayer unable or unwilling to disclose the names and addresses of the recipients, the amounts paid by way of commissions, rebates and discounts should be disallowed in the tax computations. This arrangement is accepted as a compromise to the business concerned and it does not relieve the recipient of these payments from his responsibility to return the amount for tax purposes.
Details refer to https://www.ird.gov.hk/eng/pdf/dipn12.pdf