Category: APJT Archive

This article looks at the continuing, and indeed increasing, problem of double taxation of employees moving between Hong Kong and the Mainland. This situation of double taxation within a single country is one which most independent observers would likely consider unacceptable and in need of urgent resolution. Nonetheless, the different tax systems adopted in Hong Kong and the Mainland, together with the largely autonomous operations of the Hong Kong Inland Revenue Department (IRD) and the State Administration of Taxation of The People’s Republic of China (SAT), provide some obstacles to solving the issue. This is so even though the 2006 Arrangement Between The Mainland of China and The Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the DTA) should provide a framework and mechanism for overcoming such obstacles....

As part of an overall process to streamline the interpretation and application of tax treaties entered into by mainland China with other jurisdictions, the State Administration of Taxation (SAT) recently issued on 26 July 2010 a tax circular, Guoshuifa [2010] No. 75 (Circular 75), on the interpretation of the Double Tax Agreement between the People’s Republic of China and Singapore (China-Singapore DTA). Although Circular 75 is a unilateral interpretation and practice guideline issued by the SAT with respect to implementing the China-Singapore DTA, it is also the first set of comprehensive guidelines the SAT has issued for the interpretation of treaties. Its significance is that it applies not only to the China-Singapore DTA but also to any other DTA that China has concluded, with provisions that are consistent with those of the China-Singapore DTA. In addition, Circular 75 prevails over any previous interpretive circular on DTAs in cases of conflict or inconsistency with regard to any specific treaty provisions....

On 2 August 2010, the New Zealand Supreme Court granted leave to Messers Penny and Hooper to appeal the decision of the Court of Appeal, which was delivered on 4 June 2010. In that case, the Court of Appeal applied the new Parliamentary contemplation test which had been developed by the Supreme Court in Ben Nevis Forestry Ventures Ltd. This article examines the decision of the Court of Appeal in Penny & Hooper and concludes that the Parliamentary contemplation test has created more uncertainty than the test it replaced....

As the economy in China continues to bloom, many Chinese enterprises have been trying to open the gate to investments in foreign countries as they expand their businesses worldwide. To cope with the growing number of outbound investments, the Chinese tax authorities have introduced certain new measures, including controlled foreign corporation (CFC) rules, to discourage the shifting of income to foreign jurisdictions that do not levy taxes locally or that impose tax at favourable rates. At the same time, the indirect foreign tax credit (FTC) rules, which were established based on the direct FTC rules in the previous law, are designed to minimise double taxation on foreign income attributable to Chinese enterprises under the new Enterprise Income Tax (EIT) Law system effective from 1 January 2008. This article explains the CFC and FTC rules in China with illustrative examples, followed by a discussion of relevant observations....

The leasing business model has long been a hot topic among academics, industry, and relevant government agencies. Moreover, specific seminars and lobby work have undertaken to push the development of leasing in China. As a rule, the business of leasing involves both operating leases and financial leases. This article focuses on cross-border leasing activities, which are becoming increasingly popular in international trade. The writer will share her understanding of the relevant regulations and summarise her observations and experiences in this area from the perspective of Customs, including customs liability, tax impact, customs, valuation, as well as rental remittance and foreign exchange requirements....

Although many countries in the Asia Pacific region and Europe have yet to recover from the 2009 financial crisis, the Chinese economy continues to boom. With an average GDP growth of 9 per cent over the past 10 years and a continuous trade surplus, China has extremely healthy foreign currency reserves and has built up substantial purchasing power. The promulgation of the “Administrative Measures for Outbound Investment”, issued by the Ministry of Commerce with effect from 1 May 2009, reflects the Chinese Government’s understanding of the desire of PRC companies to invest abroad and the need to implement more measures to encourage and monitor such outbound investment. Under the “Going Out” policy, mainland investors have gained more opportunities and a wider range of options for accelerating their global expansion. Having said that, many aspects of the tax regime are also changing. This article focuses on how these changes affect Chinese companies investing overseas....

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...

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...

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....

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....