Report of possible tax evasion - The Hong Kong Church of Christ Company Limited

We would like to report on possible tax evasion of this registered company – The Hong Kong Church of Christ Company Limited.

  1. Background

The Hong Kong Church of Christ Company Limited (hereafter referred as HKCOC) is incorporated in Hong Kong as a company limited by guarantee (with company number 381766). It is exempted from profits tax as it is registered under Section 88 of the Inland Revenue Ordinance as a charitable organization. Before incorporated as a company limited by guarantee in 1996, it was registered under the Society Ordinance as the Hong Kong Church of Christ (Society).

It was set up in Hong Kong in 1988 by a group of people coming from U.S.A. who belonged to the International Church of Christ (hereafter referred as ICOC). The lead evangelist was Mr. Scott Green who returned to the U.S.A. in 1997 and his successor is Mr. Philip Lam. Even though Mr. Scott Green returned to the U.S.A., he still maintain his control / influence of HKCOC as HKCOC belongs to the sector known as China World Sector that is led by him. HKCOC is the biggest among the various organizations in the China World Sector.

Normally, a company limited by guarantee should be managed by the board of directors or his delegates. However, in real case HKCOC is managed by the lead evangelist Mr. Philip Lam together with his group of full time ministry and administrative staff. The main income of HKCOC is monetary contribution made by its members (which now currently estimated to be about 2,000 in number). Salary and benefits for Mr. Philip Lam and his group of ministry and administrative staff are totally paid by the contribution collected.

  1. Financial Information

Refer to the attached audited financial reports of HKCOC from 1996 to 2002 which are obtained from the Company Registrar, we have the following summary and observations:

Year / Income / Staff Cost / Overseas Travel / Meal Allowances / Professional Reimbursement / Sundry Expenses / Mission Support
95 / $21,365,959 / $9,158,363 / $2,219,491 / $953,085 / $936,253 / $619,109 / $365,645
96 / $29,738,286 / $10,026,947 / $1,925,728 / $1,304,614 / $1,330,359 / $1,078,926 / $404,082
97 / $32,394,559 / $9,674,419 / $1,279,819 / $805,509 / $1,714,356 / $1,086,745 / $7,320,170
98 / $36,517,870 / $10,408,059 / $1,255,361 / $890,047 / $1,956,447 / $1,798,588 / $5,425,700
99 / $36,938,833 / $11,235,691 / $1,339,452 / $698,076 / $2,051,993 / $1,514,906 / $5,436,900
00 / $43,240,366 / $12,650,527 / $1,125,834 / $350,841 / $1,867,467 / $1,052,601 / $6,594,380
01 / $45,180,701 / $14,243,812 / $1,567,382 / $524,522 / $2,069,425 / $1,237,112 / $8,640,060
02 / $40,818,388 / $17,572,883 / $1,415,534 / $561,814 / $1,888,908 / $884,785 / $8,179,300
03 / $34,678,917 / $20,162,080 / $580,274 / $0 / $1,992,435 / $0 / $5,483,408
04 / $29,011,344 / $16,334,395 / $843,352 / $0 / $0 / $0 / $2,379,632
Total / $320,873,879 / $115,132,781 / $12,708,875 / $6,088,508 / $15,807,643 / $9,272,772 / $47,849,645
  1. Within the ten years period (1996 – 2004), the total income of HKCOC amounts to more than 320 million HK dollars.
  1. About 15% of the total income (around 47.8 million HK dollars) has been used on mission support. From what we understand, all these funds are not used for activities inside Hong Kong but rather have all been transferred to U.S.A. allegedly for the purpose of missionary support. There is no documented evidence explaining how money on this particular expense has been spent. There was even a statement from Mr. Scott Green (ex-HKCOC lead evangelist who returned to the U.S.A. in 1997) that money was spent in buying a house in Seattle for him as a parsonage which was later sold at a profit.
  1. About 50% of the total income (around 158 million HK dollars) is used to pay for the staff salaries and various fringe benefits including meal allowance, overseas travel, professional reimbursements and sundry expense.
  1. Again from the financial reports of HKCOC from 1996 to 2004, the accumulated funds of HKCOC are:

Year / Accumulated Funds / % change per annum
95 / $1,183,238
96 / $5,578,419 / 471%
97 / $5,246,839 / 94%
98 / $8,771,582 / 167%
99 / $12,231,307 / 139%
00 / $20,637,424 / 169%
01 / $25,809,272 / 125%
02 / $23,550,332 / 91%
03 / $22,635,222 / 96%
04 / $24,293,835 / 107%

Over ten years, the accumulated funds of HKCOC have increased by about 21 times from 1.18 million to 24.29 million Hong Kong dollars by end of 2004.

  1. Referring to the financial report of HKCOC in 2003, it is noted that its principal activities have been revised to include investment holding. From the same report, it is noted that 7.8 million Hong Kong dollars worth guaranteed notes have been purchased. A further 2.028 million Hong Kong dollars worth securities have been held as indicated in the financial report in 2004.
  1. Referring to the financial report of HKCOC in 2002, it is also noted that a subsidiary company – Dragon Fund International Investment Limited has been set up with about 1 million Hong Kong dollars investment from the parent company.

  1. Possible areas of tax evasion

We believe HKCOC is taking advantage of its charitable organization status to avoid profits taxation in the following areas:

  1. The board of directors is selected only by Mr. Philip Lam and / or his group of ministry and administrative staff. Public nomination and selection has never been done. Even worse, details of the directors including their identities are never made known to the members. The board of directors is only a kind of “rubber stamp” and all decisions related to the use of fund are entirely made by Mr. Philip Lam and / or his group of staff.
  1. It is noted that the accumulated funds of HKCOC have been increased about 21 times from 1.18 million to 24.29 million Hong Kong dollars by end of 2004. Such large amount of money is well in excess of regular cash flow requirement. In fact, HKCOC is making use of such large reserve to invest on other financial vehicles like guaranteed notes and securities.
  1. It is noted that the principal activities of HKCOC have been revised privately to include investment holding without notifying its members. Even though it is reported in the 2002 financial report that there is no assessable income in the subsidiary company, we believe this is a very common and convenient way for money laundering.
  1. It is noted that about 15% of the total income has been used on mission support. The money is transmitted outside Hong Kong to the U.S.A. There is no documented evidence showing how the money was spent. Even more alarming is that there was a statement from Mr. Scott Green (ex-HKCOC lead evangelist who returned to the U.S.A. in 1997) that money was spent in buying a house in Seattle for him as a parsonage which was later sold at a profit.

  1. Request

As tax payers and former members of HKCOC, we appeal to the IRD to conduct a detailed investigation into HKCOC in particular on their possible abuse of charitable organization tax exemption.

I would appreciate if you can advise your investigation actions / results to the following persons :

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