Column: HK Technical Column(s)

I recently published an article in this journal critically assessing the published guidance issued by the Hong Kong Inland Revenue Department (IRD) on the carry forward of unrelieved losses following a court-free company amalgamation under the new Companies Ordinance (Cap 622) (“CO”).1 That article examined in detail the guidance published by the IRD on 31 December 2015, which it subsequently revised on 16 December 2016.2 Accordingly, the purpose of this updated commentary is to identify and discuss certain additional matters raised in the revised guidance in the broader context of the debate on the utilisation of losses carried forward post-amalgamation. Readers should at this stage note that the essence of the IRD’s guidance, and, by extension, of my conclusions on the same, remains unchanged....

The Hong Kong Government has closely followed the development of the base erosion and profit shifting (“BEPS”) project undertaken by the Organisation for Economic Co-operation and Development (“OECD”) at the request of the G20. The BEPS project culminated in the publication of reports covering 15 distinct action points. As with most governments, Hong Kong has expressed broad support for the principles and concerns underlying the project and the direction of its proposals and recommendations. Nonetheless, as with many jurisdictions, it seems likely that Hong Kong will, at least in the foreseeable future, choose not to implement those proposals which are considered unnecessary in the current Hong Kong tax environment or which are inconsistent with the broad scheme of Hong Kong’s tax legislation. ...

With the coming into force of the new Companies Ordinance (Cap. 622) (NCO) on 3 March 2014, Hong Kong finally acquired a court-free, simplified amalgamations regime. The relevant governing provisions are found in Part 13, Division 3 of the NCO.1 Companies may amalgamate vertically 2 as, for example, may occur between a parent company and its wholly owned subsidiary, or horizontally,3 as between, for example, two wholly owned subsidiaries of the same third company. It is envisaged that the introduction of a court-free system of amalgamation will simplify and accelerate corporate group reconstructions. Whereas the old Companies Ordinance (Cap. 32) (OCO) contained an amalgamations regime,4 an amalgamation under the OCO required court approval and therefore in practice operated more as a scheme of arrangement, being regarded as too onerous and time-consuming to be an effective instrument for restructuring....

This article will review selected cases relating to profits tax, salaries tax, penalty loading, and procedural matters reported in Volume 30 (1st and 2nd supplements) of Board of Review Decisions. There are two profits tax cases, four salaries tax cases, two penalty cases, two cases on extension of time to appeal, one case on a section 70A claim, and one case on case stated. The two profits tax cases are on source of profits. Among the four salaries tax cases, two concern the taxability of a termination payment. With regard to the two penalty cases, the Board dismissed one case and reduced the penalty in the other. All the other appeal cases were dismissed....

This article reviews the cases reported in Volume 28 (3rd supplement) and Volume 29 of the Board of Review Cases. Seven cases deal with profits tax, three with salaries tax, two with extension of time, and five with penalty. Among the seven profits tax cases, three relate to property disposal, one to source of profits, and the last three to deduction, of which one concerns section 61A. The three salaries tax cases include one on the source of a director’s fee, one on the taxability of termination payment and one relating to housing benefit. The Board dismissed all the cases on extension of time and penalty....

The case provides an in-depth discussion of one of the basic principles of the income tax system, namely the distinction between capital and revenue with respect to the characteristics of gains that we, as tax practitioners, commonly deal with. In particular, it highlights the importance of ensuring that the nature of the taxpayer’s trade or business is characterised accurately in order to determine the chargeability of profits tax under Section 14 of the Inland Revenue Ordinance (“IRO”). The case also provides commentary on the mechanics of the seldom discussed Sections 15(1)(m) and 15A of the IRO and analyses the operation of the relevant balancing charges provisions. From an administrative standpoint, the recent decision of the Court of Final Appeal (“CFA”), which discusses the issue of making an assessment after the expiry of the six-year limitation period, reinforces the importance of upholding the protection purportedly given to taxpayers. However, such a conclusion comes with a disclaimer in that there may be...

This article outlines the proposed changes to the tax treaty provisions recommended by the Organization for Economic Co-operation and Development (OECD) in their report of 16 September 2014 entitled “Preventing the granting of treaty benefits in inappropriate circumstances” (“the Report”). It focuses specifically on the Limitation of Benefits and Principal Purpose tests. Comments on the impact on Collective Investment Vehicles (CIVs) are also detailed in the context of the recommendations of the Report, as well as the follow-up work outlined in the OECD’s 21 November 2014 Discussion Draft. At the end of this article, we comment on how Hong Kong has reacted to the OECD’s anti-treaty shopping push as well as what these proposed changes may mean for Hong Kong in the future....

Section 15(1)(c) of the Inland Revenue Ordinance (IRO)1 was enacted in 1971, and brought within the charge to Hong Kong profits tax: “[s]ums received by or accrued to a person by way of a grant, subsidy, or similar financial assistance in connection with the carrying on of a trade, profession, or business in Hong Kong, other than sums in connection with capital expenditure made or to be made by the person”. Such grants and subsidies are deemed to be Hong Kong source profits arising in or derived from a trade, profession, or business carried on in Hong Kong, and are accordingly chargeable to profits tax under section 14 on that footing. There remains, however, an unresolved ambiguity in the scope of the words “grant, subsidy, or similar financial assistance”. Despite having been enacted over 40 years ago, section 15(1)(c) has never been properly considered by the higher courts of Hong Kong, or even substantively analysed by the Board of Review....

The Hong Kong Special Administrative Region (HKSAR) is experiencing unprecedented change as it strives to be seen as a cooperative jurisdiction with respect to tax transparency and exchange of information. This paper reviews developments over the last two years since late 2013, the highlights being the HKSAR implementing legislation for facilitating tax information exchange agreements (TIEAs - the first being concluded with the US in mid-2014), signing a Model 2 intergovernmental agreement (IGA) under the Foreign Account Tax Compliance Act (FATCA) to enable financial institutions to transfer relevant information to the Internal Revenue Service (IRS), and embracing the Organisation for Economic Cooperation and Development’s (OECD) new standard for automatic exchange of information (AEOI) by committing to introduce legislation to facilitate AEOI by 2018. The HKSAR is also actively engaged with the challenges and opportunities of the OECD’s base erosion and profit shifting (BEPS) project....

This article will review selected cases relating to profits tax, salaries tax, property tax, penalty loading, and procedural matters reported in Volume 29 (1st to 3rd supplement ) and Volume 30 of the Board of Review Cases. There are seven profits tax cases, four salaries tax cases, one property case, four penalty cases, and two cases on procedural matters. Among the seven profits tax cases, three relate to property disposal, one on source of profits, and three on deduction, of which two concern sections 61 and / or 61A. Among the four salaries tax cases, there is one on gratuity payment, one on commission to a director, one on whether services were rendered in Hong Kong, and one on dependent brother allowance. The Board dismissed all cases on penalty and procedural matters....