The Tax Consequences of Withdrawals of Trading Stock: Resolving the Conundrum of Sharkey V Wernher

Hong Kong Law Journal, Vol. 35, No. 2, p. 327, 2005

Posted: 29 Aug 2006

See all articles by Michael Littlewood

Michael Littlewood

University of Auckland - Faculty of Law

Abstract

This article examines the law governing the tax consequences of withdrawals of trading stock, and the difference in approach between the House of Lords and the Hong Kong Court of First Instance. The author proposes a middle ground, according to which a trader who takes an item of trading stock for her own use should be taxed as if she had never acquired the item at all (in accordance with Hong Kong authority), so long as she can satisfy two evidential requirements. Specifically she must demonstrate (1) precisely what her financial position would have been if she had never acquired the item and (2) that this alternative method of calculating her liability would not permit her to extract profits from her business without paying tax on them. If she cannot satisfy these two requirements, she should be taxed as if she had sold the item at market value (in accordance with House of Lords authority). This solution, it is argued, is more protective of the Revenue than current Hong Kong authority, and more equitable in its treatment of taxpayers than current English law.

Suggested Citation

Littlewood, Michael, The Tax Consequences of Withdrawals of Trading Stock: Resolving the Conundrum of Sharkey V Wernher. Available at SSRN: https://ssrn.com/abstract=926750

Michael Littlewood (Contact Author)

University of Auckland - Faculty of Law ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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