This ruling applies
in respect of section 14 of the IRO.
2. Background
(a)
The Company is an affiliate
of Y Group whose main business is production and trading
of motors. The Company has been providing administrative
services to Y Group in Hong Kong.
(b)
During 2005/06, Mr X became the majority
shareholder and a director of the Company.
(c)
Mr X has been residing in the PRC. He has
extensive working experience and knowledge about a special
type of ship. He has developed a business network of the
shipping industry in the Far East, excluding Hong Kong.
3. The arrangement
(a)
The Company and a UK firm, R Company will
enter into a service agreement ("the Agreement")
whereby the Company agrees to provide marketing research
service to R Company, and to introduce Far East suppliers
and customers in respect of a specified type of ship to
R Company in return for service fees.
(b)
The Company has set up an office in the
PRC. Mr X and the Company's staff in the PRC will perform
all the services set out in the Agreement outside Hong
Kong.
(c)
None of the services arising from or in
connection with the Agreement will be rendered by the
staff of the Company's Hong Kong office and Hong Kong
director. They will continue to provide administrative
services to Y Group in return for management fees which
are subject to Hong Kong Profits Tax.
4. The ruling
The profits to be derived by the
Company in the performance of the services set out in
the Agreement will not be chargeable under Hong Kong Profits
Tax.
5. The period for which the ruling applies
This ruling applies from the year
of assessment in which the Agreement becomes enforceable
until the year of assessment in which the Agreement is
terminated.
6.
The
material assumptions in respect of a future event or any
other matter made by the Commissioner
(a)
Far East, and Far East Region,
as mentioned in the Agreement do not include Hong Kong.
(b)
The Company will not sub-contract the services
to be provided by the Company under the Agreement to Y
Group, the Company's affiliates or any other third parties.
7. Date of ruling issued
12 March 2007.
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. For service fee
income, the source of profits is the place where the services
are performed. In the present case, the Company's profits
to be derived from the Agreement will not be chargeable
to profits tax as all the relevant services will be performed
outside Hong Kong.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
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