Column: HK Technical Column(s)

The recent surge in Hong Kong property prices has increased concerns about the affordability of property among low-to-middle class income residents, as well as a potential risk that a property bubble will be created as a result of speculative property-dealing activities. Since the onset of the global financial tsunami, the monetary policies of certain economies have helped to increase global liquidity and have resulted in a large inflow of “hot money” into the Hong Kong financial system, particularly from the Chinese Mainland. It has been reported that more than 600 billion Hong Kong dollars in hot money flowed into Hong Kong after the global financial meltdown in late 2008, a significant amount of which was injected into the stock and real estate markets. A substantial portion of hot money also flowed into Hong Kong following the 4 trillion renminbi Chinese stimulus package in November 2008, which led to a massive influx of buyers from the Chinese Mainland....

Plant and machinery play an important role in manufacturing operations. For tax purposes, capital expenditure on plant or machinery is usually allowed in the form of depreciation allowances. The current practice of the Inland Revenue Department (IRD) in denying the depreciation allowance claim on manufacturing plant and machinery by Hong Kong companies in their import-processing arrangements in mainland China, in accordance with section 39E of the Inland Revenue Ordinance (IRO), is considered unfair; this is because an additional tax burden is being imposed on some taxpayers who comply fully with the tax requirements. In this article, we discuss the following: 1. The history of cross-border processing businesses; 2. S e c t i o n 3 9 E , i t s i n t e n t , a n d r e c e n t developments; 3.Our observations regarding the impact on import processing businesses; and 4. Interpretation of section 39E....

Over recent years, controversial debates have occurred over the interpretation and application of section 39E of the Inland Revenue Ordinance (IRO), since the Inland Revenue Department (IRD) does not allow Hong Kong taxpayers to claim depreciation allowances on their plant or machinery used outside Hong Kong under import-processing arrangements. Given that the plant or machinery forms an integral element, or even the core component, of the taxpayers’ business operations, this has given rise to a demand to come up with possible solutions to iron out their concerns. Entrepreneurs in the manufacturing industry are even pushing the legislative authorities to put their concerns over this issue at the top of the agenda....

Among the various taxes and duties administered and collected by the Hong Kong Inland Revenue Department (IRD), over the past five years stamp duty has been one of the top three contributors to the revenue of the Hong Kong Government. Stamp duty is charged on documents. In Hong Kong, the governing legislation of stamp duty is the Stamp Duty Ordinance (SDO) (Chapter 117). Its charging scope includes, inter alia, a conveyance on sale of immovable property in Hong Kong and a transfer of Hong Kong stock....

Volume 25 of the Inland Revenue Board of Review Decisions (IRBRD) has recently been published and reports altogether 12 cases: one penalty tax case, two profits tax cases, one property tax case, and eight salaries tax cases. This review includes cases on a penalty tax, property dealings, the 60- day exemption, the home loan interest deduction, and more....

Charities are a part of every society. There are many organisations in Hong Kong that conduct various activities to help those who are in need or less fortunate. But despite their good underlying intentions, not all “voluntary” or so-called “nonprofit- making” organisations are charities for tax purposes. In fact, there is no provision in the Inland Revenue Ordinance (IRO) which exempts a “voluntary” or “non-profit-making” organisation from tax. But under Section 88 of the IRO, charitable institutions or trusts of a public character are exempt from tax subject to certain limitations. The charitable institution may apply to the Inland Revenue Department (IRD) for tax exemption under Section 88. In this article, we will cover 1) the definition of a charity from a Hong Kong tax perspective; 2)the advantages of having charitable status under Section 88; 3) the relevant statutory law, a relevant court case, and our comments; 4) our observations; and 5) our concluding remarks....

Hong Kong has now concluded 18 Comprehensive Double Taxation Agreements (CDTAs) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes and income with other jurisdictions. A CDTA is a bilateral agreement between two states or jurisdictions. A main purpose of a CDTA is to avoid double taxation by allocating the right to tax an income item arising from a cross-border transaction between the state of residence of a taxpayer and the state of source of the income item. Under a CDTA, the taxing right to an income item may be allocated exclusively to the state of residence, hence avoiding double taxation. Alternatively, where both the state of residence and the state of source have taxing rights over an income item, it is generally up to the state of residence to grant relief from double taxation under a CDTA either by exempting the income item, or by allowing taxes paid in the state of...

Following the earlier Court of Appeal decision in the Datatronic case,1 on 3 May 2010, the Court of First Instance (“CFI”) held that in the case of C G Lighting Limited (“the C G Lighting case”),2 the profits of the taxpayer arising from its sales of goods acquired by way of a sub-contracting arrangement with its wholly owned subsidiary in the mainland were fully chargeable to Hong Kong profits tax. The C G Lighting case was an appeal by the Commissioner of Inland Revenue (“CIR”) against the decision of the Board of Review (“BoR”) in which the BoR allowed the taxpayer’s claim for 50:50 apportionment and remitted the case back to the Inland Revenue Department (“IRD”) to decide the appropriate apportionment. The 50:50 apportionment is a concession granted by the IRD by virtue of its Departmental Interpretation and Practice Notes No. 21 – Locality of Profits (“DIPN No. 21”) for contract processing arrangements whereby a Hong Kong entity provides raw...

In the recently published Board of Review Decisions Volume 24 and its first supplement, there are a total of 29 cases: 7 profits tax cases, 12 salaries tax cases, 3 property tax cases, 2 penalty tax cases, 1 personal assessment case, 1 practice and procedure case, and 3 applications to state the case to court. This article will review some of the important cases, with particular emphasis on discussing the cases on source of profit, antiavoidance provisions, and source of employment....

The decision by the CFA in Shui On in November 2009 marks the culmination of a number of recent CFA decisions on the construction of section 61A commencing with Tai Hing and HIT1 in December 2007, followed by Ngai Lik2 in July 2009. This article discusses the facts and significance of the Shui On decision in light of this series of cases....