• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 12/3/2013

Hong Kong - Unrealised revaluation gains not taxable 

December 3:  Hong Kong’s Court of Final Appeal concluded that unrealized gains recognized at year-end are not taxable. The appellate court rejected the Inland Revenue’s position that unrealised profits are not chargeable to tax, notwithstanding that the gains were recognised in the taxpayer’s financial statements in accordance with international accounting standards. Nice Cheer Investment Ltd. v. CIR, FACV 23/2012


A company trading marketable securities, quoted on an exchange in Hong Kong, had unrealized increases in the value of its trading stock during the accounting period. The increases were not reflected in the taxpayer’s profit and loss accounts or tax computations.

Following accounting standard changes in 1998, in its profit and loss accounts, the company recorded not only profits and losses that it had realized by the sale or disposal of trading stock during the accounting period, but also changes in the value of unrealized trading stock held a the end of the period.

The company claimed that the unrealized gains were not taxable, but that the unrealized losses were deductible.

Appellate court decision

The Court of Final Appeal found that in preparing tax computations, the company was entitled to treat its unrealized profits as not chargeable to tax. However, the appellate court held that the taxpayer could not use unrealized loss to reduce its liability of profits tax.

Read a November 2013 report [PDF 403 KB] prepared by the KPMG member firm in Hong Kong: Court of Final Appeal confirms that unrealized revaluation gains are not taxable

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