Topic 2 Characteristics of HK Taxation sys-1)Schedular Tax sys-Tax is levied for inc.

arising from Salaries Tax, Profits Tax & Property Tax. Inc.s from sources
other than these 3 sources are exempted from tax. 2)Territorial Source Principal- Taxes charged on inc. derived from HK irrespective of the nationality domicile or
residence of the person concerned. Unlike other jurisdictions which adopt full inc. tax, HK tax laws do not impose tax on offshore inc. 3)Low Tax Rate 4)Simple Tax
Sys- No direct tax such as GST, No Value Added Tax, No Capital gain tax, No direct asst. such as PAYE 5)Generous depn allow. 6)Tax collected by issue of an asst.
7)No withholding tax (tax deducted at inc. when paid) Obligations of a Taxpayer S51- 1)Complete return within the time limit as requested in the notice from an
assessor in writing 2)Notify Commissioner of the chargeability of tax not later than 4 mths after the end of the basis period in which the inc. was derived 3)Answer
enquires 4)(a) Answer enquires as a third party 6)Notify Commissioner in writing of the cessation of inc. within 1 mth of such cessation 7)Notify Commissioner in
writing of the departure from HK for any period exceeding 1 mth not later than 1 mth before the expected date of departure 8) Notify Commissioner in writing of the
change of address within 1 mth of such change (C) Keep record of business inc. & expend. for a period not less than 7 yrs (D) Keep record of property inc. for a
period not less than 7 yrs Power of CIR S51-1)To request taxpayers to complete tax returns/ 3)To furnish fuller or further returns/ 4)(a) To give written notice to a
person whom considered to possess information which may affect any liability, responsibility or obligation of the first named person/ 4)(a) To give written notice to a
person to attend & be examined questions/S.51A To given notice, with the consent of CIR, to a person whom is suspected to have filed an incorrect return having the
effect of understating his inc. without reasonable excuse, to provide a statement of assets & liabilities not less than 30 dys of the notice Issue of asst. S59- after the
expiration of the period allowed at the tax return/ immediately without waiting until the expiration of the period allowed in the return if an assessor is of the view that a
taxpayer is leaving HK or there is any reason to do so Manner of issue of an asst.-An assessor may issue an asst. base on the information in the return or based
on other information as follows: S.592)(a) as per information as return (b)not according to the information in the return (c)estimated asst. in the absence of a return
(d) based on a percentage of the turnover of the co. Time limit for issue of an asst.-S601) within 6 yrs after the end of the relevant yr of asst. (proviso) within 10
yrs after then end of the relevant yr of asst. S54 proviso (c)within 3 yrs after the end of the yr of asst. in which the death of the taxpayer took place Asst. Being Final
& Conclusive under S70 (i)no objection is lodged against the asst. within the 1 mth objection period (ii)the objection or appeal has been withdrawn by the taxpayer
(iii)the result of the objection has been agreed between the taxpayer & the assessor (iv) no appeal is lodged to the BOR within 1 mth appeal period against the CIR’s
determination (v)no appeal is lodged to the Court of First Instance, Court of Appeal or Court of First Appeal, as the case may be, within the respective appeal period.
Loss statement Issued by CIR-is not an asst./ not final & conclusive under S70 until an asst. in a later yr fully sets off the loss being brought forward/ Both a
taxpayer & the CIR revise the loss statement (before it is full set off by a subsequent asst.) [Common Empire Ltd v CIR (06)] Revision of Asst. due to Error
under S70-lodge an application to reduce the tax liability Types of errors: made in return upon which the asst. was issued/ made in a statement supporting the
return upon which the asst. was issued/ an arithmetical error made in the computation of inc. or tax/ an omission of claim of exp, donation or personal allow./an error
in law Not applicable in S70:estimated asst. issued not according to the return submitted under S592)(b)/ estimated asst. int he absence of return under
S593)/asst. issued in the prevailing practice at the time of issuing the asst./ an error was deliberately made by the taxpayer such as in the case Extramoney Ltd. v
CIR Time limit:within 6 yrs after the end of the yr of asst. involved, or within 6 mths after the date of the issue of the asst. whichever is the later Holdover payt of
Prov Tax:1)In written notice 2)Time limit for filing a holdover claim a) Not later than 28 dys before the due date of payt of prov tax b) not later than 14 dys of payt of
prov tax whichever is the later Grounds:Personal Asst. elected (Salaries Tax)/ Assessable inc. less than 9-% of that of preceding yr/ No inc. derived in the yr of
asst./Objection lodged int he preceding yr of asst./Loss b/f incorrect (Profit Tax)/Personal allow. entitled but not yet claimed in the preceding yr of asst. Topic 3 Def.
of “assessable value”-S5B2) is the consideration, in money or money’s worth, payable in that yr to, to the order of, or for the benefit of, the owner in respect of
right of use of that land or buildings or l& & buildings. These includes: rent/ payts for right of use of premises under licence/ lump sum premium/ services charges,
mgt fee paid to the owner/ owner’s expend., such as repairs borne by the tenant Def. of “NAV”- is arrived at by reducing rates paid by the owner & the aforesaid
statutory deduction of 20% from the AV Deduction:Rates paid by the owner/A statutory deduction of 20% on the AV after having deducted the rates Not
Deductible: interest on a mortgage loan or other loan upon the purchase of the property/Government rent/repairing exp/alteration & improvement to the property/
building mgt fee Exemption & Relief-S52)(a) of the IRO permits a corporation to apply for exemption from property tax, which only applies to a corporation, but
does not apply to a partnership or a sole-proprietorship business/Set-off of property tax against profits tax Property Tax Planning (Property vs Profit)- Situations
where it is more beneficial to purchase a property by an individual (i)the owners pays the price without incurring any interest exp (ii)a new property without
the need of heavy decoration (iii)easier to claim capital gain at the time of disposal by a corporation (i)a lot of deductions not available under property tax but
available under profits tax, eg interest, repair, refurbishment, IBA or CBA (ii)when the property is sold, the individual has te option of selling the property directly by
the corporation or indirectly be selling the shares of the corporation holding the property (SD for the sale of shares of a corporation is 0.2% lower than that for the
sale of a property $100 or 0.75% to 3.75%) (iii)A corporation has to compile with a lot of legal formalities, such as filing of annual co. return, auditing financial
statements, & incurs accounting & audit fees on an annual basis (iv)It is more difficult for a corporation to argue for a capital gain than an individual Topic 4 Tax
treatment- A.No time-apportionment of taxable inc. B.When inc. is fully taxable C.When inc. is fully exempt- 2 exemptions i. the employee renders ALL his services
for that employment OUTSIDE HK (S8(1A)(b) or the employee is a visitor to HK & stays in HK for 60 dys or less in a yr of asst. (S8(1B)). D.When inc. is excluded
form the charge of salaries tax General principles: A receipt or benefit received to be taxable under salaries tax if the receipt 1. relates to services rendered int he
past, present or future or 2.is in connecting with an employment 3.is in the form of “Money or Money;s worth” 4.doesn’t matter whether it is paid by the employer or a
third party. A HK or non HK employment? S.14 of IRO: HK employment-> inc. arising in HK even though part of the services performed outside HK (fully taxable)
Exemption: If all services performed outside HK or that prat of inc. has been taxed outside HK DIPN10: 3 conditions to be satisfied 1) the contract of employment
was negotiated & entered into, & is enforceable outside HK 2)the employer is resident outside HK 3)the employee’s remuneration is paid to him outside HK Is time
basic apportionment (60-dys rule)? Only available to inc. from a non HK employment 1)fully exempted from HK salaries tax&S8(1B) stays in HK as a visitor for
60 dys or less in a yr of asst. What constitues chargeable inc.? S91) which states that inc. from office or employment includes any wages, salaries, leave pay,
fee, commission, bonus, gratuity, perquisite or allow., whether derived from the employer or others/ discharging the employee’s monetary or pecuniary liability S91)
(a)(iv)/any benefit which is convertible into money S9(2A)(a)/payt for the deduction of a child of an employee S9(2A)(b)/ payt under a retirement scheme which is not
a recognized occupational retirement scheme S91)(aa)/payt under a recognized occupational retirement scheme not as a result of termination of service, death,
incapacity or retirement of the employee S91)(ab)(i)/payt in excess of the proportionate benefit under a recognized occupational retirement scheme as a result of
termination of service S91)(ab)(ii)/ the rental value of residence provided by an employer S91)(b)&(c)/ the rental value of residence where the employer refunds
partly or wholly the rent paid by the employee- S9(1A)/the gain realised on the grant of share option- S91)(d) How individual Inc. Tax paid in China to be
catered for as far as HK Salaries Tax is concerned? It already be taxed overs was excluded from chargeable inc. S8(1A)(c),&the tax so paid overs must be the
same nature as HK salaries tax. A.Exclusion of inc. already taxed outside HK (i.same nature & ii. evidence that the tax has been paid or deducted) B.Tax of
substantially the same nature C.Tax credit available under Double Tax Arrangement with Mainland China D.Comparison of exclusion of inc.(only the inc. not taxed
outside HK is taken into account in calculating a taxpayer’s salaries tax liability)&tax credit methods (a taxpayer’s full inc. is taken into account in the computation of
his gross HK salaries tax liability before deducting the tax credit available) How are the rental value & rental refund to be calculated? i)Place of residence
provided rent-free:10% of inc. (excluding gain on shares option&lump sum receipt at the termination of the employment) from the employer (after deducting allowable
exp & depn) ii)Place of residence provided at a rent which is less than the rental value: to deducted rent suffered from the aforesaid rental value, or the employee is
chargeable on the excess of the rental value over the rent suffered. iii)The employer refunds of all or part of the rent paid by the employee: the refund of rent made
by the employer to the employee is not treated as cash inc., but instad the amt to be included in the chargeable inc. is the rental value (10%) calculated int he same
manner as the prov in the employment contract,&employer exercises strict control on the employer for payent of rent by the inspection of stamped lease agreement
or mthly rental receipts iv)Rental allow.: where the employer does not exercise any control on whether the employee uses the money for payt of rent, & employee is
free to use the money as he likes. How do you treat the subscription to professional bodies? Holding of a professional qualification is a prerequisite of
employment & benefit to the performance of duties S.121)(a) How do you treat the self education exp? A prescribed course of education received to gain or
maintain qualifications for use in either the curent or a planned employment S.121)(e) How do you treat the Donations to Charitable Institution?Min. $100/
Not exceeding 25% or 35% of(assessable inc.- allow. outgoings- depn allow.s), which is restricted to amt actually paid How do you contribution to MPF? Max. amt
deductible is restricted to $12k per yr of asst. (3B of IRD) Election of Joint Asst. S102)-Made by husband and wife jointly/Within 1 yr after the yr of asst. or 1 mth
after the date on which the salaries tax asst. become final & conclusive, whichever is the later/ Both of the husband & wife have assessable inc. but 1.The NA inc. of
either spouse is less than his or her concessionary deductions & personal allow.,or The combined tax payable by the husband & wife under separate taxation is
greater that under joint asst.. Salaries Tax Planning-Two strategies 1.changing the source of employment i.Expatriate coming to HK-Dual contracts: one signed
with the employer in home country & the other signed with the HK co. so that inc. for services rendered in HK & overs can be clearly separated/ Time basis
apportionment for a non-HK employment if the taxpayer chooses to continue with the employment contract with the overs employer/To form a new employment
contract with the HK co. so that all inc. are taxed under HK salaries tax unless services performed overs ii.HK resident going to work abroad ii.To sign a new
employment contract with overs employer so as to fully exempt from HK salaries tax/To treat the services performed overs as an extension of the HK employment-
>be liable to HK salaries tax in full 2.designed a tax-saving remuneration package-To max deductions available &/or favourable treatment of inc./ Items may be
included in the package: 1.Prov of Accommodation & rental fund 2.Contractual liabilities born by the employer:utilities bills, domestic helpers, medical benefits, co.
cars 3.Low or interest free loan/To make sure complying with appropriates laws&preparing doc properly Topic 5 Profits Tax S14- is charged on every person,
carrying on a trade, profession or business in HK & in respect of his assessable profits arising in or derived from HK from such trade, profession or business Six
Badges of Trade 1) profits seeking motive at the time of acquisition of asset 2)the nature of the asset being disposed 3)the length of ownership 4)the frequency of
similar transactions carried out by the person 5)work done to increase the value of the asset or to effort made in selling the asset 6) circumstances leading to the
disposal of the asset Trading with HK- If a non-resident sells goods to HK customers, he is regarding as trading with HK, & the non-resident is not subject to HK
profits tax Trading in HK- Set up a branch or office in HK by a non-resident, sold the goods to customers in HK by the branch or office, profits derived by branch or
office is subject to HK profits tax Non-resident IRR5- If a non-resident has a “permanent establishment”(means a branch mgt or other place of business, but does
not include an agency unless the agent has, & habitually exercises, a general authority to negotiate & conclude contracts on behalf of the principal or has a stock of
merchandise from which he regularly fills orders on his behalf) in HK, it is treated as carrying business in HK. Trading with a Local Agent with a General
Authority- A local agent to negotiate & sell the goods for non-resident in HK/ Whether the local agent has a general authority to sign contract on behalf of the non-
resident/ The profits tax dem& note will be issued to the non-resident through the local agent Trading with a Local Agent with a Stock of Merch&ise- The non-
resident keeps a stock of merch&ise which are sold by a HK agent/ The non-resident is treated as having a permanent establishment in HK/ The non-resident is
liable to HK profits tax/ The HK agent has to withhold on behalf of the non-resident not more than 1% of the sales proceeds as profits tax payable DIPN21 Six basic
principle (determine the source of HK inc.)- 1. hard, practical matter of facts & no universal rule to cover every case 2. boarding guiding principle: one looks to see
what the taxpayer has done to earn the profits in question & where he has done it 3. The distinction between HK profits & offshore profits is made by reference to
gross profits arising from individual transactions 4. apportionment of profits as arising partly in HK & partly outside HK 5. the place where day-to-day investment
decision taken cannot determine the locality of profits 6. absence of overs establishment does not mean that all profits are derived from HK Payt of intellectual
property to Non-resident S151)(a),(b)&(ba)- 1. Intellectual property registered outside HK & owned by a non-resident 2. If the intellectual property (royalty) is
used in HK, royal inc. received by the non-resident is taxable 3. If the royalty is used outside HK & if the royalty is a deductible exp of a business carried on in HK,
royalty inc. received by the non-resident is taxable[Emerson Radio Corporation v CIR (99)- Exempt if the royalty exp is not deductible exp] S.21A- If (a)
the payer & payee are associate, & (b) the intellectual property involved was previously owed by a person in HK-> the whole royalty inc. paid to the non-resident is
taxable-> either (a) or (b) condition does not satisfy only 30% of the royalty inc. is treated as assessable profit S.21B- Tax payable is to be withheld before
remittance of the royalty inc. payt to the non-resident DIPN17- IRD has relied on S20A to enable the tax due by a non-resident to be assessed & collected even
where the non-resident has no physical presence in HK. It provide that a non-resident perso may be assessed directly or in the name of his agent in respect of his
profits arising in or derived from HK from any trade, profession or business carried in HK & further provides that the tax so charged shall be recoverable from the
assets of the non-resident or his agent. [CIR v. Asia Television Limited (87)]- ATV is not an “agent” & it could only be charged by direct asst.. As a result, IRD is
unable to use S20A to assess non-resident where the HK person & the non-resident deal with each other on a principal to principal basis. Then new S20B- only
applies to situations where persons in hK who are not agents deal with a specified class of non-residents. S20B2)- a HK person pays to a non-resident royalties or
licence fees in the circumstances prescribed by S151)(a), (b) or (ba), he will chargeable to tax on behalf of the non-resident in respect of the payt. S20B3)- requires
HK person from whom tax is recoverable, the person who is chargeable on behalf of the non-resident, to deduct at the time he pays or credits the non-resident a
sum sufficient to meet the tax due. The amt of Tax to be withheld- 2/3 of the gross receipts payable to the non-resident or 1/3 of the gross proceeds is automatically
allowed by the IRD in computing the assessable profits of a on-resident. “Agent” in relation to a non-resident- the agent, attorney, factor, receiver or manager in
HK of such person, & any person in HK through whom such person is in receipt of any profits or inc. arising in or derived from HK. Exempted Inc.- a) non-HK
sourced profits b) capital receipts- sales of fixed asset/ receipts for a permanent loss of fixed asset (temporary loss/ loss of trading stock/ revenue nature & taxable)/
compensation of loss of contract with constitues a material part or all the business/ sale of permanent quota [taxable if compensation for cancellation/termination of
contract/ not taxable if the cancellation affects the fundamental operation structure of the co.] c) dividend from HK co. S26(a) d) interest on tax reserve certificate
S26(1A)(a) e) interest & profits on a Government bond S26(1A)(b)(c) f) exempted interest inc.- under the Exempter Order [taxable if deposits are pledged to
guarantee money borrowed & the interest exp are deductible under HK profits tax/ not taxable on deposits with an authorized institution) General principe- An exp
is deductible under profits tax: i. to the extent that it is incurred for the production of chargeable profit S161) ii. not of domestic or private in nature S171)(a) iii.
not of capital in nature S171)(c)- is an once & for all payt? & is an enduring benefit is created by the payt? S.161)(a) Referring additional requirements for
deduction of interest (b) Rent paid by any tenant of land or buildings (c) Overs inc. tax paid for inc. chargeable under s151)(f),(g),(i),(j),(k) or (l)
(d) Bad & doubtful debts (e) Repair to building, machinery & utensil, etc (f) Replacement of any implement, utensil or article (g) Registration of a
trade mark, design, or patent Prescribed fixed asset S16G-wholly deductible/not subject to depn allow.s/plant & machinery acquired for manufacturing
process or computer hardware/software/does not apply to asets acquired on hire purchase/Sales proceeds-> taxable (restricted to cost deducted) Legal Fees-
collection of trade debt but the debtor is untraceable/purchase of office premises/for the lease of office premises/for the renewal of lease of office premises Bad debt-
must be trade debt & it is proved to the satisfaction of the assessor that the debt has been bad or uncollectible S161)(d)/not deductible unless the taxpayer carries on
a money-lending business & general prov Fine & penalty-not deductible if it is a result of breach of law S171)(b) but it is in accordance with the terms of trading
contract is deductible Tax Paid-deductible if salaries tax paid for employees & directors & overs inc. tax paid on interest inc. under S151)(f),(g),(i),(j),(k) & (l)
Approved Charitable Donation S16D-max 25% or 35% of adjusted profits before donations Professional accounting & tax services fees deductible but not deductible
if for disputing an asst. Repairs- in relating to any premises, plant, machinery, implement, utensil or article employed in the production of assessable profits S161)(e)-
>no new things added to the asset but merely restores the asset to its original status Contributions to recognized occupational retirement scheme-Ordinary
regular contributions (m&atory or voluntary) are deductible up to 15% of each employee’s emoluments-S171)(h)/Initial or special contributions are deductible in equal
installments over 5 yrs S.16A2)/Contributions to non-recognized occupational retirement scheme-not deductible Payt to sole proprietor, partners & their
spouses-All exp paid to the sole proprietor, partners & their spouses are not deductible/Exception: rent paid to the spouse for the business purpose Foreign
Exchange Losses- Deductibility depends on the nature of underlying transactions (i) exchange losses on revenue transactions are deductible (ii) exchange losses on
capital transactions are non-deductible Deduction of Interest Exp-In general, interest paid on a loan borrowed is deductible if i) the interest is incurred in the
production of assessable profits (S.161)&(a)), ii) the interest is not capital in nature (S.171)(c)) & iii) one of the conditions stipulated under S.162) is satisfied. S.162)-
Interest Exp deductible if money borrowed by a financial institution (FI) S162)(a) & money borrowed for the purpose of producing chargeable profits. S162)(b)-
money borrowed by a public utility co./ money borrowed for the purpose for producing chargeable profits & interest rate does not exceed a rate prescribed by the
Financial Security S162)(c)-money borrowed for the purpose of producing chargeable & the lender (not a FI) is subject to tax on the interest inc. S162)(d)-money
borrowed for the purpose of producing chargeable profits & money borrowed from FI or an overs FI, & NOT secured or guaranteed S162)(d)-money borrowed for
the purpose of producing chargeable profits & money borrowed from FI or an overs FI, secured by a deposit of the borrower (or an associate of borrower), & the
interest received on the deposit was subject to profits tax S162)(e)-money borrowed for the purpose of producing chargeable profits & money borrowed wholly &
exclusively for the purchase of machinery & plant or trading stock, & the lender is not an associate of the borrower S162)(f)-money borrowed for the purpose of
producing chargeable profits & debentures are listed on an exchange or are marketable instruments Secured Loan Test S16(2A) (i) If the loan is secured or
guaranteed, wholly or in part, directly or indirectly, by a deposit made by the co. with the bank & the interest on the deposit is taxable in HK, the interest exp on
money borrowed is deductible. Interest Flow Back Test S16(2B) applicable to section 162)(c),(d),(e) (ii) The interest received by the lender flows back to the
borrower, & the interest so received back by the borrower is not taxable in HK, the interest paid by the borrow is not partially or wholly deductible. 16(2C) applicable
to S162)(f)-If the interest on listed debentures received by the lender flows back to the borrower (or its associate), & the interest so received back by the borrower is
not taxable in HK, the interest paid by the borrower is not deductible [Non-deductible interest exp = non-taxable interest inc. x loan amt/ total security] Topic 6
Reason for calculation of depn- Different accounting policies & method available for calculating depn, usually not acceptable by IRD/ Depn Allow. is a set of rule
for calculation of depn for tax purpose 1)Plant&machinery [initial allow. of 60% on the cost of capital expend. {granted whenever a capital expend. on plant &
machinery incurred in the basic period/ No matter whether the plant & machinery are in used or not during the basic period} + annual allow. of 10%, 20% or 30% on
the reduced balance {granted to qualified person (owner)/ No annual allow. is granted after acquisition until to put it in use}] PM = whatever machine is used by
a businessman for carrying on his business/ not his stock in trade/ all goods- fixed or movable, live or dead/ which he keeps for permanent employment in his
business a.Qualifying Expend.s includes: the net cost of acquisition (= the list price of PM plus freight, insurance, deliver, import duties, etc mins discount,
rebates subsidies, etc.)/ interest paid & commitment fees incurred arising from the loans &/or credit for the purchase of capital expend. & capital expend. on
alternations to an existing building incidental to the installation of that plant or machinery but excludes: any grant, subsidy or similar financial assistance b. Depn not
granted: If cost of the asset be deductible fro the assessable profits/ If assets acquired for the purpose of research & development under S16B/If it is a prescribed
fixed asset acquired under S16G/ If it is an environment protection machinery under S16H to 16K 2)IBA [initial allow. of 20% on cost of construction&annual allow. of
4%, on a straight line basic, on cost of construction] a.Qualifying for IBA includes: cost of construction/ foundation fee/ interest paid&commitment fees incurred
in respect of a loan made for the sole purpose of financing the prov of an industrial building or structure b. IBA not incl.: cost of land/cost of levelling the ground/
cost of demolishing the old building erected at the site/ expend. which is reimbursed by way of or attributable to ay grant, subsidy or similar financial assistance c.
Property purchased not from a developer i. Only the actual cost of construction as defined in the above definition ii. Profits made by the seller is not
included as a art of the cost of construction Persons Qualified for IBA a. Owner or landlord- entitled to IBA on the cost of construction of the structure of the
building b.Tenant- entitled to IBA on the cost of decoration or improvement exp that incurred by him/ not entitled to the cost of construction of the building itself IBA
for the first h& user a. Initial allow. b. Annual allow. c. No IBA is granted, only CBA is granted if the Building or structure not used for industrial purpose IBA for the
second user a. Annual allow. only AA = Residue of expend. x (1/number of yrs from the 1st yr that the purchaser is entitled to IBA to the 25th yr
after the yr of first use od the building) Residue of expend. = WDV + Balancing Charge (or less Balancing allow.) Balance charge = Sale proceeds
minus residual expend./ Balancing allow. = Residual of expend. minus sale proceeds 3)CBA [no initial allow. + only annual allow. of 4% on cost of construction]
a.CBA granted on qualified capital expend.: cost of construction/ foundation fee/ interest paid & commitment fees incurred in respect of a loan made for the
sole purpose of financing the prov of a commercial building or structure b.Qualifying capital expend. not qualified for CBA: cost of l&/ cost of levelling the
ground/ any grant, subsidy or financial assistance c. Only the actual cost of construction is used for the computation of CBA Topic 7 General principles
of PA- 1.not a tax on inc. but a relieve to a taxpayer who is liable to more than 1 category of tax 2.advantageous of entitlement of personal allow.s & being assessed
a progressive rate Advantages of PA- 1. to gain adv of PA 2. to gain adv of being taxed on the progressive tax rate 3. to gain adv of off setting charitable donation
not deducted under salaries tax & profits tax 4. to gain adv of off setting trading loss 5. to gain adv of deducting interest incurred on producing property inc.
Eligibility for Election for PA-a. An individual may elect PA if he or she is: 1. Age: 18 above, or under that age if both his or her parents are dead; & 2.Resident
status:a permanent or a temporary resident in HK or 3.if he or she is married, whose spouse is either a permanent or temporary resident b. Permanent & temporary
resident i. Permanent resident means: an individual who ordinarily resides in HK ii. Temporary resident means: an individual who stays in HK for more than 180 dys
during the yr of asst. in respect of which the election is made; or more than 300 dys in 2 consecutive yrs of asst., 1 of which is the yr of asst. in respect of which he
elects for PA Procedure for Election for PA a. Time limit for election- in writing/ within 2 yrs after then end of the yr of asst. in which the election is made or within 1
mth after any asst. on inc. forming part of the total inc. has become final & conclusive, whichever is later b. Joint election of husb& & wife i. Both spouses having inc.
chargeable in HK both spouses must: 1. elect for PA & sign the tax return jointly 2.to aggregate their inc. to arrive at the join PA tax payable 3.each spouse will revive
a dem& note of his or her share of PA tax, & is liable to pay his or her own share of PA tax only b. One of the spouses living outside HK- the spouse living outside HK
may rely on the resident status of the other spouse to elect for PA/ if the spouse living in HK is either a permanent resident or a temporary resident in HK, the spouse
living outside HK is treated as having the same resident status as that of the spouse living in HK When Election for PA Becomes Not Advantageous a. When
PA leading to a larger amt of tax payable- usually appears in higher inc. earners b. Withdraw of PA is available Objection to PA tax Dem& Note a. No objection to
the chargeable inc. already final & conclusive/ Reopen of an asst. on property tax, salaries tax or profits tax which has been final & conclusive under s.70 is not
possible b. Grounds of objection to dem& note is possible if it involves: 1.interest exp incurred for the purchase of a property chargeable to property tax 2.the
taxpayer’s proper share of inc. derived from a partnership 3. the amt of business loss 4. the amt of concessionary deductions 5.claims of various personal allow.
being rejected c. Objection procedure 1.in writing 2.addressed to the CIR 3.received by the CIR within 1 mth after the date of the PA tax demand note 4.with specific
grounds of objection stated in the notice of objection Topic 9 Tax Planning-reduce a person’s tax liability by legal ways/ allowed by the IRO/common planning
techniques: 1.refund of rent under salaries tax 2. performing all services outside HK 3.diverting inc. sourced outside HK 4.making the inc. a capital gain Tax evasion-
reducing the tax liabilities of a person in an illegal way, which involves: 1. false records 2. concealment 3. misrepresentation of a person’s tax affairs [criminal
offences subject to heavy punishment] Techniques for Profits Tax Planning a.General principle: avoiding the inc. being chargeable with tax/ increasing the amt of
deductible exp/Common techniques:1.to illustrate that the profit is a capital gain 2.to arrange the operations of the business in such a way that the profits may be
sourced outside HK 3.to increase the deductible exp before the yr end b.Capital gain: Badges of trade/ Presentation in the balance sheet c.Direct profit having a
source outside HK i.Trading profit ii.Manufacturing profit iii.Service Inc. iv.Interest inc. d.Increasing deductible exp before the yr end: Review of the prov for
doubtful debts/Review of the prov of obsolete inventory/ Purchase of plant machinery before yr end Anti-avoidance provs a.General principles- 1.specific anti-
avoidance rules: aim at tracking certain transactions which involves a tax avoidance to reduce tax liability 2. general anti-avoidance rules: aims those situations not
covered by the specific rules 3.It was ruled in the Yick Fung Estate Limited v CIR (1999) that general anti-avoidance provs takes precedent over the specific anti-
avoidance rules b.Payt of royalty to a non-resident associate by a HK co S21A-Generally, 30% of the royalty is treated as assessable profits for the royalty
received by a non-resident from a HK co. S21A provide that royalty inc. will be 100% assessed if:1.the royalty is paid to an associate, & 2.the intellectual property
was once owned by a HK business. c.Assignment of right to receive inc. S15A-When a co sells or assigns a right to receive a lump sum inc. to another co.
which incurs a tax loss, the inc. so received from is exempt from profits tax under the general tax laws as the receipt is of capital nature. However, S151)(m)&15A
overrides the general tax law & makes the consideration received chargeable to profits tax although it is of a capital nature d.Deduction of interest: Interest paid to
non-financial institution S162)(c)/Interest paid to financial institution S162)(d)/Interest paid to a non-associate person or co. for the purchase of machinery or trading
stock S162)(e)/Interest paid to listed debentures or marketable instruments S162)(f)/Interest paid on a loan which is not secured by a deposit in the name of an
individual or an oversea co. or an oversea institution- S16(2A)/Interest paid on a loan which does not involve any interest flowing back to the borrower or an
associate of the borrower S16(2B)/Interest paid on listed debentures or marketable instruments which do not involve any interest flowing back to the borrower or an
associate of the borrower S16(2C) e.Change of account date S18E-permits the CIR to adjust the assessable profit in the yr of asst. in which there is a change of
accounting date to avoid a large drop-out profit f.Transfer pricing transaction involving non-resident S20-enables the CIR to attack arrangements made
between a resident person & a closely connected non-resident person who carries on business in such a way that it results in either no profits which arise in or
derive from HK; or less than the ordinary profits which might be expected to arise in or derive from HK. If S20 applies, the non-resident is treated as carrying on
business in HK through the resident co. as its agent, & the CIR may collect profits tax of the non-resident from the HK resident. g.Use of the loss of a corporation
S61B-The loss of a corporation may be carried forward. When a loss co. is sold to an new shareholder, the shareholder may make use of the loss to set off against
its future profit. In order to stop such practice, S61B provides that if the sole or dominant purpose to acquire the shares of a corporation is to make use of the loss of
the corporation for set-off against future profits, the loss of the corporation may not be able to c/f to set off against its future profit. Two general anti-avoidance provs
in the IRO:1)S61 Artificial or fictitious transactions- “Where an assessor is of opinion that any transaction which reduces or would reduce the amt of tax payable
by any person is artificial or fictitious or that any disposition is not in fact given effect to, he may disregard any such transaction or disposition & the person concerned
shall be assessable accordingly” “artificial” = is not natural, not normal or not ordinary “fictitious transaction” = the parties to such a transaction never intendent to
carry it out 2)S61A Transactions designed to obtain a tax benefit-7 criteria:1)the manner in which the transaction was entered into or carried out 2)the form &
substance of the transaction 3)the result that would have been achieved by the transaction 4)any change in the financial position of the relevant person that has
resulted from the transaction 5)any change in the financial position of any person who has any connection with the relevant person that ha resulted from the
transaction 6)whether the transaction has created rights or obligations which would not normally be created between persons dealing with each other at arm’s length
under a transaction of the kind in question 7)the participation in the transaction of a corporation resident or carrying on business outside HK Application of S61A-
1)the sole or dominant purpose of some transactions is to confer a tax benefit to a person, &2)there is no commercial justification or reason to carry out such
transactions. Topic 10 Scope of Charge:is a tax levied on doc, not on transactions. If a transaction can be effected orally or by conduct only, no SD is payable/ is
chargeable on a territorial basic, ie only doc relating to designated assets located in HK are subject to HK SD/2 types of SD: fixed duty&ad valorem duty 4 heads: 1)
Immovable property in HK a.Doc:temporary S&P/formal S&P/conveyance on sale b.Stamping of Non-Resident Property: i.Doc: conveyance on sale (no SD
payable in the case of a sub-sale of a non-resident property) ii.Time: 30 dys after the date of execution of the conveyance iii.Value:higher of the consideration or the
value of the property on the date of the conveyance iv.If value of the property rises between the teime of signing the S&P & the conveyance, SD is charged on the
value of the property at the date of the signing of the S&P c.Stamping of Residential Property: i.Agrement for sale ii.Second agreement for sale within first
agreement for sale: If the S&P is superseded by another S&P signed by the same parties with the same terms within 14 dys after the execution of the first S&P, no
SD is payable on the fist S&P. Ad valorem SD is payable on the second S&P within 30 dys after the execution of the second S&P. iii.Deferral of payt of SD: The time
for stamping can be deferred, upon application by the dutypayer to the Collecter, to 30 dys after the date of execution of the conveyance or; 3 yrs after the date of
execution of the S&P iv.value: higher of the consideration or the value of the property on the date of the S&P Collection of SD & Issue of SD Asst. a.Sales &
purchase of a property: i.SD is payable at the time of presenting the chargeable instrument for stamping ii.If the consideration stated in the S&P or conveyance is
below the value of the property being transferred or assigned, a SD asst. is to be issued to demand further SD that must be paid within 1 mth after the date of the
issue od the SD asst. b.Gift of property: no value stated in the deed of gift, no SD/for land. 2.registration purpose, adjudication is required/ If the value of the property
is ascertained by the Rating & Valuation Dept at a later date, a SD asst. demanding for the SD will be issued by the collector/SD is to be paid within 1 mth from the
date of the SD asst. c.Appeal-To lodge an appeal to the District Court against the SD asst./Within 1 mth from the date of the issue of the SD asst.
Adjudication:Compulsory is required if: A conveyance or contract note for transfer of any HK stock in consideration, wholly or partly, of a debt & consideration
exceeding the value of the asset/ A conveyance or transfer operating as a Voluntary Disposition Inter Vivos/Instrument exempted from SD/ Gift of immovable
property or HK stock to charitable institution/ Transfer of shares between associate bodies corporate. Lease:for immovable property situated in HK/ if the lease is
made orally, no SD is chargeable as SD is charged on written instruments only/the time for stamping is within 30 dys after the execution of the lease/ if an instrument
whereby the rent reserved by a chargeable stamped lease is increased, only the additional rent is chargeable of SD/rent free period is taken as part of the lease
period/ lease with premium only is chargeable with SD at the conveyance scale/ lease with mthly rent only is chargeable with SD according to the length of the lease/
if the lease comprises both premium & mthly rent, SD on premium is 3.75%&mthly rent according to the lease period 2)HK stocks-The transfer of shares of an
overs incorporated co. may be chargeable with HK SD if register of members of the co. is maintained in HK/bought note & sold note at 0.1% on higher of the value of
the shares transferred or ad valorem duty/SD of instrument of transfer is fixed $5 Involved in the Gifting:only the instrument of transfer is chargeable at:a fixed SD of
$5 & 0.2% ad valorem SD on the value of the shares transferred 3)HK bearer instruments-S2 of SDO:any instrument to bearer by delivery of which ay stock can
be transferred/ in HK; or elsewhere by or on behalf of a body corporate formed, or an unincorporated body of persons established in HK/ SD rate at of 3% on the
market value which is payable before issue 4)Duplicates&counterparts-is liable to SD/is $5/ stamp period is 7 dys after execution, or a longer period as the time
limit for stamping the original instrument would allow Determination of consideration-Money, money’s worth, debts assigned or waived, securities or commodity
Operation of S241),2) & 3) i.Debt assigned:incl. contingent ones, payable by the transferees are treated as part of the consideration that is chargeable with SD
ii.Debt waived:if the amt of debts waived exceeds the value of the property assigned, the amt of the debts so waived becomes the consideration for the purpose of
stamping under S241)/if the dutypayer wishes to choose the value of the property as the stamping value, he may apply to do so but the instrument has to be
adjudicated iii.Debt guaranteed:In the case of sale of stock, the amt of debts guaranteed by the transferee is also treated as part of the consideration for SD purpose
under S243) Contingency principle:If the consideration is not ascertainable at the time of stamping & the value of the consideration depends on the happening of
a future event, the instrument will not be subject to SD, eg where a lease agreement contains a term that the amt of rent payable depends on the turnover or profit
secured by the tenant during the lease period Relief&Exemption from SD a.If marriage as consideration for a conveyance, no SD b.Lease made in respect of
consular premises or made with the government is exempted c.Gift Made to Charitable Institution is exempted d.Group SD Relief for Transfer of HK property or
Stock if the conditions are satisfied: one of the parties is beneficial owner holding not less than 90% of the issed share capital of the other/a third of such body is
beneficial owner of not less than 90% if the issued share capital of each/ a statutory declaration must be made by a responsible officer of the partent corporate &
submitted for adjudication S45(5A) is an anti-avoidance section for manipulation of the relief by duty-payers which is provided that the associated relationship
between the transferor & the transferee has to made maintained for 2 yrs from the date of the transaction otherwise the relief will be withdrawn. If such event
happens, the SD is to be paid as if no such relief has been granted. Failure to inform the Collector will be subject to a fine $5k.It is provided in S454) that if the
consideration for the sale, purchase or conveyance of property or transfer of stock is provided by a person not an associate body corporate of the transferor or
transferee, the SD group relief under S45 will not apply unless the fund is provided by a financial institution. SD is not chargeable under S275):a conveyance or
transfer of stock made for nominal consideration for purpose of securing the repayt of an advance or loan/ a conveyance or transfer of stock made for effectuating
the appointment of a new trustee, whether the trust is expressed/an instrument made under which no beneficial interest passes in property conveyed or transferred/
a conveyance or transfer of stock made to a beneficiary by a trustee or other person in a fiduciary capacity under any trust, whether expressed or implied; or a
conveyance or transfer of stock made to the shareholders fot he distribution of the assets of a liquidated co in proportion to their holdings in the co.