Hong Kong Tax Planning Essay

3008 Words Apr 2nd, 2013 13 Pages
1. the Hong Kong profits tax implications to STPL in respect of its arrangement with STPCL (15 marks)

• Section 14(1) of Inland Revenue Ordinance (IRO) imposes three conditions for profits to be chargeable to Hong Kong profits tax. • There is no doubt that STPL has been carrying on a business in Hong Kong. • For manufacturing profit, the profit making activity is the manufacturing operation (see Hang Seng Bank case). • For import processing, where the Hong Kong company’s involvement in the Mainland production process is minimum, with the support from Datatronic case, the IRD takes the position that the manufacturing operations of the Mainland enterprise are not performed on behalf of , or for the account of, the Hong Kong
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The IRD will then consider and resolve the case on its own if possible or where necessary, endeavour to resolve the issue with the competent authority of the Mainland (however without the obligation of necessarily reaching agreement with the competent authority of the Mainland).

3. Hong Kong tax implications in respect of the trademark arrangement among TI, STPL, and GRE (15 marks)

STPL’s tax position

There are two questions. First, whether the royalty paid to TI is deductible. Second, whether the royalty income received from GRE is taxable.

Based on the general tax deduction rule under Section 16(1), STPL would be able to deduct the royalty expense paid to TI if it is incurred in the production of assessable profits to STPL. The deductibility of the portion of royalty for use of the trademark by STPL on selling its own products and the portion for allowing GRE the right to use the trademark to be considered separately. Accordingly, if the royalty received from GRE is assessable to STPL, STPL would be able to deduct the portion of the royalty paid to TI for allowing GRE the right. Whether the royalty income received by STPL from GRE is taxable depends on whether the income is arising in or derived from Hong Kong. If STPL’s profits on selling products

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