This ruling applies
in respect of Section 14 of the IRO.
2. Background
(a)
The Company was incorporated
in Hong Kong during 2005/2006. Its directors are non-Hong
Kong residents. The Company is a wholly owned subsidiary
of H Ltd. which carries on business in Country A.
(b)
The Company is a member of X Group whose
main business is production and trading of chemical
products. The Group has production sites in various
countries and its worldwide sales functions are performed
in Country B.
(c)
The Group has started sourcing Chemical
S from Country C. The Company's director has a well-established
network in sourcing Chemical S in Country C.
3. The arrangement
(a)
The Company was designated as X Group's
sourcing and sales representative of Chemical S.
(b)
The Company and H Ltd. has entered into
an agreement whereby the purchase and sale of Chemical
S to territories excluding Hong Kong will be handled by
H Ltd. The Company will receive commission from H Ltd.
for enabling H Ltd. to derive trading profits in utilizing
the director's well-established network in Country C.
(c)
The Company does not maintain any office,
employ any staff, appoint any agent nor operate any bank
account in Hong Kong.
4. The ruling
(a)
The Company does not carry on business
in Hong Kong; and
(b)
The commission received by the Company
from H Ltd. pursuant to the commission agreement are not
chargeable to Hong Kong profits tax under Section 14 of
the IRO.
5. The period for which the ruling applies
This ruling will apply with effect
from the year of assessment 2005/2006 and subsequent years
of assessment.
6.
The
material assumptions in respect of a future event or any
other matter made by the Commissioner
The Commissioner has assumed that
the subject arrangement would be implemented in the way
stated in the ruling application and the ruling. No other
assumption was made.
7. Date of ruling issued
7 February 2006.
8. Commentary
Under Section 14 of the IRO, every
person who carries on a trade, business or profession
in Hong Kong is chargeable to profits tax on the profits
arising in or derived from Hong Kong. In the present case,
the Company has no business carried on in Hong Kong and
it does nothing in Hong Kong to earn the commission in
question, therefore Section 14 does not apply.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
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