Non-disclosure is good!

When I started off in the tax profession some years ago one of the first lessons I was taught was that NON-DISCLOSURE is one the most deadly sins imaginable.  Dishonesty personified!

Imagine my horror upon finding that one of the local partners here believes it is acceptable to cover up the firm's mistake.

Simple scenario: Local partner asks me to help out on a basic regional recharge plan for a US company that is regionally HQd in HK. 

• HK operation supplies services to member firms throughout Asia and no income of its own.
  
• These services are not recharged to Asian companies.
• Massive accumulated tax losses in HK entity since 1998.
• So, recharge expenses in order to run down tax losses accumulated in HK.

Having done my bit on the Asian recharge, I was asked to have a look at document Local Partner had drawn up on HK tax consequences. It struck me that if there if the expenditure in Hong Kong had been incurred to generate income in other Asian countries, it should not have been claimed as a tax deduction in HK which led to the huge tax loss accumulated. We of course did the tax returns where the expenditure was improperly claimed

Having raised this with said partner and suggesting that the taxpayer should volunteer to have the deductions reversed and the tax loss adjusted. I was astonished to be given a fresh draft of the document today that effectively said that the "IRD may reverse the expenditure claimed but is unlikely do so if it does not know. We advise that it is not necessary to inform the IRD of the actual situation as this may result in the loss of the tax loss." 

Immediately called genius partner to say that this was not appropriate advice only to be told document had already been sent to client, and that the firm can not be seen to have got the initial advice wrong.

God Help us!!!!!!!! 

In other country that would be instant dismissal - but then, as the local partners frequently tell me,  This is Hong Kong!