This ruling applies
in respect of section 20(2) of the Ordinance.
2. Background
(a)
S Ltd was incorporated in
Hong Kong. It provides technical, marketing and other
auxiliary administrative support services, and is engaged
in spare parts trading. Its profits will be subject
to Hong Kong Profits Tax.
(b)
It is a wholly-owned subsidiary of P
Ltd, which was incorporated in Country Y.
(c)
P Ltd is principally engaged in manufacturing
and distribution of machineries in Europe, USA and Asia.
3. The arrangement
(a)
P Ltd will enter into an agreement
with S Ltd.
(b)
S Ltd will provide support
services including: -
i.
Presenting the catalogue of
P Ltd's products to P Ltd's customers;
ii.
Carrying out market research and pass
the information to P Ltd;
iii.
Providing assistance to P Ltd in trade
fairs or exhibitions;
iv.
Helping to follow up with P Ltd's customers
on the overdue trade debts;
v.
Performing installation, training and
maintenance services to P Ltd's customers in Hong Kong
or elsewhere.
(c)
In return for the services
performed, P Ltd will pay S Ltd a fee calculated at a
10% mark-up on the actual cost incurred.
(d)
Under the agreement, S Ltd
will not be given any authority to negotiate or conclude
any purchase / sales contracts on behalf of P Ltd, to
place purchase orders or accept sales orders on behalf
of P Ltd, to maintain any inventory for P Ltd in Hong
Kong, to establish any branch or maintain any distribution
depot for the sale of products of P Ltd in Hong Kong.
4. The ruling
Section 20(2) of the Ordinance does not
apply to the Arrangement.
5. The period for which the ruling applies
The ruling will apply for the year
of assessment 2006/2007 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 arrangement would be implemented in the way stated
in the ruling application and the ruling.
7. Date of ruling issued
5 June 2006.
8. Commentary
Under Section 20(2) of the IRO,
where a non-resident person carries on business with a
closely connected resident person and the course of such
business is so arranged that it produces to the resident
person either no profits or less than the ordinary profits,
such business shall be deemed to be carried on in Hong
Kong and the profits of the non-resident person from such
business shall be assessable and chargeable to profits
tax in name of the resident person. In the present case,
the arrangement has produced to S Ltd profits that are
not less than the ordinary profits, therefore Section
20(2) does not apply.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
|