The Asia-Pacific Journal of Taxation (APJT) is a joint effort between the Taxation Institute of Hong Kong and the School of Accounting and Finance of The Hong Kong Polytechnic University.

It publishes research papers, commentary notes, book reviews and articles that address significant issues in the field of taxation relevant to Hong Kong, China and the Asian Pacific region.

The APJT aims to provide quality service to the readership by making its content ore informative and thorough, and by striking a proper balance between professionalism and intellectual stimulation.

The APJT normally publishes two issues every year.

Feature Articles

HK Technical Column(s)
Volume 27, Number 1
A Review of Recent Board of Review Cases. (Sep 2023)


Joint Editors

Jody Wong
The Hong Kong Polytechnic University
Percy Wong
The Hong Kong Polytechnic University
Philip Hung
The Taxation Institute of Hong Kong
Carol Liu
The Taxation Institute of Hong Kong
Kelvin Mak
The Taxation Institute of Hong Kong

Editorial Consultants

Nancy Su
The Hong Kong Polytechnic University
Nigel Eastaway
MHA MacIntyre Hudson
Michael Olesnicky
Charles Swenson
University of Southern California, USA
Daniel Thornton
Queen's University, Canada
Jefferson VanderWolk
Squire Patton Boggs, USA
Marcellus Wong
AMTD Group

Editorial Board Members

Brian Andrew
University of Wollongong
Wilson Cheng
Ernst & Young Tax Services Limited
Cheng Chi
KPMG, China
Sarah Chin
Deloitte Touche Tohmatsu, HK
Jeremy Choi
PricewaterhouseCoopers, HK
Spencer Chong
PricewaterhouseCoopers, HK
Wilson Chow
The University of Hong Kong
Daniel Ho
Hong Kong Baptist University
Patrick Ho
FTMS Training System Limited
Simon James
University of Exeter
Jeyapalan Kasipillai
Monash University Malaysia
Betty Kwok
The Hang Seng University of Hong Kong
Patrick Kwong
Ernst & Young Tax Services Limited
David Lai
Hong Kong University of Science and Technology
Stephen Lee
Sinotax Services Limited
Thomas Lee
Thomas Lee & Partners
Tak Yan Leung
University of Sunshine Coast
Poh Eng Hin
Nanyang Technology University
Anthony Tam
Kalloe Vinod
KPMG, Netherlands
Jingyi Wang
Chinese University of Hong Kong
Fergus Wong
PricewaterhouseCoopers, HK
Chris Xing
KPMG, China
Eugene Yeung
KPMG, China

Letters From The Editors

In the last issue, we discussed the foreign source income exemption (FSIE) regime and the tax concessions for familyowned investment holding vehicles. The new FSIE regime came into operation on 1 January 2023, while the bill on the latter was passed by the Legislative Council in May 2023, with the tax concessions having retrospective effect for the year of assessment commencing on 1 April 2022.

However, the FSIE regime, which was enacted in response to the European Union’s (EU) inclusion of Hong Kong in its grey list of non-cooperative jurisdictions for tax purposes did not bring the matter to an end. On 14 February 2023, the EU announced the latest round of review of the lists, and Hong Kong remains on the grey list. The reason for this is that in December 2022, the EU updated its guidance on FSIE regimes, which now explicitly requires capital gains to be subject to the economic substance requirement. Hong Kong is therefore required to further fine-tune the law to
cover the treatment of foreign-sourced disposal gains in relation to assets other than shares or equity interests by the end of this year for implementation with effect from 1 January 2024.

In this respect, the Financial Services and the Treasury Bureau (FSTB) issued a consultation paper on 6 April 2023 to invite comments on the assets to be covered, the computation of disposal gains or losses, and the exemption or relief measures. The paper proposed the adoption of a definite and exhaustive list of covered assets, namely, debt instruments, movable properties, immovable properties, intellectual properties, and foreign currencies. However, this would be quite unacceptable to the EU, which clearly requires a non-exhaustive approach, as was adopted in other jurisdictions. In
regard to computing disposal gains or losses, the Government is exploring with the EU the possibility of rebasing the cost of assets at the effective date of the FSIE regime or, failing this, a tapered relief system which allows taxable gains to be reduced or “tapered” according to how long the assets have been held. After the public consultation and deliberation with the EU, the amendment bill is expected to be presented to the Legislative Council in October 2023.

On a separate but related matter, the FSTB issued another consultation paper on 23 March 2023 with the aim of providing upfront certainty of the non-taxation of onshore gains on disposal of equity interests. With the implementation of the FSIE regime, taxpayers may wish to consider structuring the disposal of equity interests onshore. While disposal gains which are capital in nature would not be chargeable to tax in Hong Kong under section 14, whether a gain is revenue or capital in nature is a question of facts to be determined on individual circumstances, applying the so-called badges of trade, which could lead to uncertainty. The consultation paper proposed that an eligible investor entity would not be
chargeable to tax on onshore equity gains if it has held at least 15 per cent of the total equity interest in the investee entity for a continuous period of at least 24 months ending on the date immediately before the disposal of such interest.

This proposal is more competitive than the equivalent safe harbour rule in Singapore, which requires the holding of at least 20 per cent of the ordinary shares in the investee company. Furthermore, the proposal is less restrictive as it applies to an investor entity, which could be a corporation, partnership, or trust, and also to different forms of equity interests (including preference shares and partnership interests). The amendment bill is expected to be introduced to the Legislative Council in the second half of the year for implementation on 1 January 2024.

Following the establishment of the mechanism for foreign funds to re-domicile to Hong Kong as open-ended fund companies or limited partnership funds in late 2021, the Government is now taking a further step to strengthen Hong Kong’s position as a global business and financial hub by introducing a mechanism for foreign companies to re-domicile to Hong Kong. A consultation paper was published by the FSTB on 31 March 2023, and the legislative amendment is expected to be submitted to the Legislative Council in 2023/24. The Hong Kong tax regime imposes profits tax on any person carrying on a trade, profession, or business in Hong Kong if the profits arise in or are derived from Hong Kong, regardless of its domicile. While the person’s tax liabilities will generally not be affected by the place of incorporation or re-domiciliation of their company, the consultation
paper proposed amending the Inland Revenue Ordinance to provide certainty to re-domiciled companies on their tax obligations and to empower the Inland Revenue Department to address transitional tax matters, such as fair deduction for trading stock, bad debts, impairment losses on financial assets, and depreciation which may have occurred before re-domiciliation. The Government intends not to impose any economic substance test for foreign companies to be eligible for the arrangement.

Traditionally, many multinational enterprises have set up companies in low or no tax jurisdictions, such as Bermuda and the Cayman Islands, to hold their investments or undertake specific business activities. These jurisdictions have implemented economic substance rules since 2019 and were seen to have stepped up their enforcement actions on compliance with the substance requirement. This, coupled with the imminent implementation of a new global minimum corporate tax of 15 per cent for in-scope multinational enterprises groups, may make the proposed regime attractive to  multinational enterprises as it offers them a way to re-domicile companies incorporated in those jurisdictions to Hong Kong with minimal business disruption and in a cost-effective manner. On the other hand, Hong Kong may benefit from the increased demand for professional services, such as accounting and legal services, and increased investment and job opportunities when re-domiciled companies switch some operations to Hong Kong.
In this issue of the Journal, we have our regular article reviewing recent Board of Review decisions in the Hong Kong technical column. Also in this column, we have tax practitioners sharing with us the tax implications for SaaS business in Hong Kong and Asia-Pacific, and the new era of profits tax filing in iXBRL format. Recently, there have been a number of changes to Cambodian tax law. The belt and road column presents some useful information on doing business in Cambodia. Last but not least, we provide the 2023-24 budget proposals presented by the Institute and the
Institute’s commentaries to the 2023-24 Budget delivered by the Financial Secretary.

Finally, we would like to express our heartfelt thanks to the authors for contributing these insightful articles. Our special thanks go to the reviewers for their invaluable comments. We are of course most thankful to our readers for your continued support. We hope you will enjoy reading this issue of the Journal. We welcome any comments and suggestions to improve the content and quality of the Journal. If you have any views or suggestions on tax matters, be they policy issues or practical matters, you are most welcome to submit a letter to the editors.

The Joint Editors
July 2023