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Heath Brian Zarin v The Commissioner Of Inland Revenue

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date16 March 2022
Neutral Citation[2022] HKCA 412
Judgement NumberCACV366/2021
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV75/2020 HEATH BRIAN ZARIN v. THE COMMISSIONER OF INLAND REVENUE

CACV 75 /2020 & CACV 366/2021
( Heard together)

[2022] HKCA 412

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 75 OF 2020 AND 366 OF 2021

(ON APPEAL FROM HCIA NO 4 OF 2019)

________________________

BETWEEN
HEATH BRIAN ZARIN Appellant
and
THE COMMISSIONER OF INLAND REVENUE Respondent

________________________

(Heard together)

Before: Hon Kwan VP, Yuen JA and Barma JA in Court

Date of Hearing: 25 February 2022

Date of Judgment:16 March 2022

________________________

J U D G M E N T

________________________

Hon Kwan VP:

Introduction

1. These two appeals are brought by the Commissioner of Inland Revenue (“CIR”) and arose in this way.

2. On 23 August 2019, the Inland Revenue Board of Review gave its decision (“Board’s Decision”) dismissing the appeal of the taxpayer, Heath Brian Zarin (“Taxpayer”), against the determination of the CIR confirming three additional assessments to salaries tax. The assessments were raised by the CIR under sections 8 and 9[1] of the Inland Revenue Ordinance, Cap 112 (“IRO”) and were in respect of five sums described as “Sum A”, “Sum B1”, “Sum B2”, “Sum C” and “Sum D”. The Board found all these sums to be “income from employment” within the meaning of section 8 and so were chargeable to salaries tax.

3. By a judgment handed down on 24 December 2019 (“Leave Decision”), Coleman J gave leave to appeal to the Taxpayer only in respect of Sum D and refused leave to appeal for all the other sums.

4. On 11 March 2020, Coleman J handed down his judgment (“Sum D Judgment”)[2] allowing the Taxpayer’s appeal from the Board’s Decision in respect of Sum D.

5. Also on the same day, Yuen JA handed down her judgment (“CA Leave Decision”) granting leave to the Taxpayer to appeal against the Board’s Decision in respect of Sums B2 and C. The substantive appeal was dealt with by Coleman J.

6. On 29 June 2021, Coleman J handed down his judgment (“Sums B2 and C Judgment”) allowing the Taxpayer’s appeal in respect of Sums B2 and C.

7. The CIR has appealed against the Sum D Judgment (in CACV 75/2020) and the Sums B2 and C Judgment (in CACV 366/2021). The two appeals were directed to be heard together.

Factual background

8. The relevant background matters, taken primarily from one or more of the judgments mentioned above, may be stated as follows.

9. The Taxpayer was employed by HSBC Markets (Asia) Ltd (“Company”) as Managing Director, Head of Direct Principal Investments Asia, by a letter dated 27 May 2010 and countersigned on 31 May 2010 (“Employment Contract”). Under the Employment Contract, amongst other things, the Taxpayer was provided with a “guaranteed bonus”, participation in a “carried interest scheme” (under which he may be eligible to share in the investment profits generated from the investment activity of his team) and participation in a “discretionary bonus scheme” (under which the Company may in its discretion award a bonus which might take the form of cash, or shares, or a combination of both).

10. As part of his discretionary bonus for the performance year 2011, on 12 March 2012 the Taxpayer was granted a restricted share award of shares, defined in the Board’s Decision as the “2012 Shares”. Those shares were to vest as to 33%, 33% and 34% in March 2013, 2014 and 2015 respectively.

11. The restricted share plan (“Plan”), and the grant and vesting of the 2012 Shares, were governed by the Rules of the HSBC Share Plan 2011 (“2011 Rules”). Amongst the terms were the following: (1) participation in the Plan was governed by the rules of the Plan and did not form part of the Employment Contract (rule 8.1.2); (2) the award would vest on the vesting date specified, provided the participant remained continuously employed within the Group or fell within the scope of the “good leaver” provisions set out in the Plan (rules 3.2, 5.2 to 5.4); (3) the awards might be amended, reduced or cancelled by a relevant remuneration committee at any time before vesting of the awards, and the committee had the discretion to impose additional conditions on the awards (rule 2.4); (4) if the participant left the Group before the vesting date(s) as a good leaver, then subject to the approval of the committee and the policy of the Company, the awards would vest in full on the vesting date(s) subject to the committee’s authority already mentioned (rules 5.2 to 5.3); (5) good leaver reasons included, amongst other things, redundancy (rule 5.2.1(v)); and (6) where the rule of good leaver is applied and the participant had entered into a termination agreement in connection with the cessation of employment, the awards would not vest until the participant had complied with, or was released from his obligations under, that termination agreement (rule 5.7).

12. By a letter dated 21 January 2013, the Company terminated the Taxpayer’s employment on the grounds of redundancy to take effect from 22 January 2013. Amongst other things, the letter stated that its terms would be in full and final settlement of the termination of employment, and that the Taxpayer would be treated as a good leaver, and the vesting of any un-vested shares would be conditional on his compliance with the terms in the letter, one term being that the Taxpayer would assist the Company and any group company in relation to certain litigation (“Litigation”) regarding the Company’s investment in a particular company, including attendance at court or arbitration hearings outside Hong Kong.

13. The Taxpayer did not accept those terms offered and made alternative suggestions. There then followed negotiations between solicitors appointed on behalf of the Company and the Taxpayer. Ultimately, by a letter dated 20 June 2013 from the Company’s solicitors and signed by the Taxpayer on 21 June 2013, revised terms and conditions regarding the taxpayer’s termination of employment were agreed (“Termination Agreement”).

14. The terms of the Termination Agreement included:

(1) because the Taxpayer’s employment was terminated by reason of redundancy, he would be treated as a good leaver so that all remaining restricted shares previously awarded to the Taxpayer would vest on the same terms as stated in the letters awarding them to the Taxpayer (clause 1.1(a));

(2) any release of the 2012 Shares would be conditional on the Taxpayer having not committed a breach of any of the terms of the Termination Agreement, including providing reasonable assistance, as set out in the Termination Agreement, in respect of the Litigation (clause 1.1(b));

(3) if the Taxpayer committed a breach of any of the terms of the Termination Agreement, any unvested 2012 Shares would be forfeited and the Taxpayer would repay the cash value of any shares vested in the period from termination of employment and the date of breach (clause 1.1(c));

(4) subject to the Taxpayer providing reasonable assistance as set out in the Termination Agreement in respect of the Litigation, the Company agreed to compensate the Taxpayer for the time he spends in relation thereto from 21 January 2013 calculated at the rate of $12,692 per day, pay reasonable travel, accommodation and legal expenses incurred by the Taxpayer in providing the assistance, and provide him with reasonable security support in India and Singapore being the relevant location of the Litigation. For the period between 22 January 2013 and the date of the Termination Agreement, it was agreed that the Taxpayer would be compensated for four days of his time spent (clauses 1.2, 2.1(c) and (d));

(5) the Taxpayer would be obliged to provide reasonable assistance in proceedings and any matter with which he was dealing during his employment and/or any matter which arose after the termination of his employment but in relation to which he has relevant knowledge, as well as specifically the Litigation until the conclusion of all evidence of the Litigation or five years from the date of the Termination Agreement whichever is earlier (clauses 2.1(a) and (b));

(6) the Taxpayer agreed to withdraw an outstanding data access request and not to issue any similar one (clause 2.2(a));

(7) except for a claim to enforce the Termination Agreement itself, the Taxpayer agreed to release and discharge the Company and related parties from all claims etc in connection with his employment or the cessation of the employment, including any claims for carried interest, bonus, restricted shares under the Plan and any payments during employment or arising from cessation of employment (clause 2.2(b)); and

(8) the Taxpayer agreed to confidentiality provisions.

15. The Company subsequently filed notifications by an employer in which it reported the Taxpayer as being in receipt of released restricted shares, as against the date of the award, date of release, number of shares released and market price, hence reportable value. The reported value included, amongst others:

(1) the sum of $1,764,805 (“SumB2”) released on 12 March 2014 as part of the 2012 Shares; and

(2) the sum of $1,579,820 (“SumC”) released on 12 March 2015 as part of the 2012 Shares.

16. The Company also paid the Taxpayer the agreed compensation for four days’ work at the agreed daily rate, in the total sum of $50,768, which is “Sum D”.

17. As mentioned, additional assessments to salaries tax were raised on five sums including Sums B2, C and D, to which the Taxpayer objected but the assessments were upheld by the CIR. The Taxpayer appealed against the determination of the CIR to the Board and the Board dismissed his appeal.

The Board’s Decision

18. The Board found the Taxpayer’s evidence to be credible, and considered his testimony as part of the body of evidence as a whole.

19. As regards Sums B2 and C...

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