This ruling applies
in respect of section 18E of the IRO.
2. Background
(a)
The Applicants comprise thirty-nine companies
in the same group. Two of them commenced business before
1 April 1974. The rest commenced business after 1 April
1974.
(b)
The holding company, one of the Applicants,
is Company A which is incorporated in Hong Kong.
(c)
The Applicants make up their accounts to
31 March.
(d)
The Applicants have established
a number of entities in the PRC to carry on business
there. These PRC entities were required by PRC law to
close their accounts on 31 December.
3. The arrangement
(a)
The Applicants will change the accounting
date from 31 March to 31 December in the year of assessment
2006/2007.
(b)
The reason put forward by the Applicants
for the change of accounting date is for administrative
efficiency and to reduce problems arising from the preparation
of consolidated accounts due to different accounting year
end dates among the group companies.
4. The ruling
(a)
The Commissioner will adopt
the 9-month period from 1 April 2006 to 31 December 2006
as the basis period for the year of assessment 2006/2007
for those Applicants which commenced business after 1
April 1974.
(b)
The Commissioner will adopt the 12-month
period from 1 April 2005 to 31 March 2006 as the basis
period for the year of assessment 2005/2006 for those
Applicants which commenced business after 1 April 1974.
(c)
The Commissioner will adopt the 12-month
period from 1 January 2006 to 31 December 2006 as the
basis period for the year of assessment 2006/2007 for
those Applicants which commenced business before 1 April
1974.
(d)
The Commissioner will adopt the 12-month
period from 1 April 2005 to 31 March 2006 as the basis
period for the year of assessment 2005/2006 for those
Applicants which commenced business before 1 April 1974.
(e)
Section 61A of the Inland Revenue Ordinance
will have no application to the transactions identified
in the application, nor any part thereof, with respect
to all Applicants.
5. The period for which the ruling applies
The ruling applies to the Applicants
for the years of assessment 2005/2006 and 2006/2007.
6.
The
material assumptions in respect of a future event or any
other matter made by the Commissioner
There are no assumptions made
by the Commissioner.
7. Date of ruling issued
6 November 2006.
8. Commentary
Under section 18E of the IRO, where
the assessable profits of a person from any trade carried
on in Hong Kong have been computed by reference to an
account made up to a certain day in any year of assessment
and the person fails to make up an account to the corresponding
day in the following year of assessment, the assessable
profits from that source for the year of change and the
year preceding the change shall be computed/recomputed
on such basis as the Commissioner thinks fit. For businesses
which commence before 1 April 1974, a basis period of
12 months should be maintained for all years of assessment
unless there is tax avoidance motive. For businesses which
commence after 1 April 1974, the aim is to ensure that
profits not less than the total profits made over the
life of the business are assessed. Hence, in the present
case for the year of change, a 12-month basis period is
adopted for the two Applicants that commenced business
before 1 April 1974 and a 9-month basis period is adopted
for those Applicants that commenced business after 1 April
1974. For the year preceding the change, the Commissioner
considers it not necessary to recompute the profits.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
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