Global

Details

  • Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 6/18/2014

Hong Kong - Source of profits relating to branch’s transactions 

June 18: Hong Kong’s Inland Revenue Department issued an “advance ruling” that addresses the locality of profits for Hong Kong tax purposes.

Background

In general, the taxation of profits in Hong Kong is territorial, so that profits arising in or derived from Hong Kong are subject to tax.


Hong Kong's tax law, however, does not contain interpretive guidance regarding the source principle. Thus, the interpretation of Hong Kong’s source rules is generally determined by the courts.

Advance ruling

The advance ruling concludes that although the taxpayer’s sales and purchase agreements for goods were effected via an offshore branch, the taxpayer’s profits had a Hong Kong source and therefore were taxable in Hong Kong.


In the advance ruling, the operations of the taxpayer in Hong Kong—i.e., operations limited to trade financing, maintaining bank accounts, managing receipts and payments and arranging letters of credit—were viewed as relevant, profit-generating activities.


Read a June 2014 report prepared by the KPMG member firm in Hong Kong: The Locality of Profits for Hong Kong Tax Purposes




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