This ruling applies
in respect of section 23B(3) and section 23B(12) of the
Inland Revenue Ordinance.
2. Background
(a)
Company A was a company incorporated
in the Mainland. It owned the vessel "L".
(b)
Company A had an agreement with Company
B, a Hong Kong company, whereby Company B agreed to charter
vessel "L" for a period of 24 months. The agreement
was entered outside Hong Kong.
(c)
Company C, a company incorporated in Hong
Kong was a subsidiary of Company A. It carries on a charter
hire business and does not maintain any office or have
any bank account in Hong Kong. It appoints an independent
third party in Hong Kong to forward any business enquiries
to its directors who work in the Mainland. The staff of
Company A handle the administration work for Company C.
(d)
Company C is also the owner of vessel
"G", a vessel registered in Country P.
3. The arrangement
(a)
Vessel "L"
i.
Company A entered into a
supplementary charter hire agreement with Company C
whereby Company A agreed to charter vessel "L"
to Company C for its charter hire business.
ii.
At the same time Company A assigned its
time charter agreement with Company B to Company C where
Company C replaced Company A as the charterer of vessel
"L". The contractual rights and obligations
were transferred from Company A to Company C by a supplementary
charter agreement.
iii.
To facilitate the management of vessel
"L", a third party shipping management company,
Company S, was appointed by Company A on behalf of Company
C as the vessel manager. Company S would handle all
general vessel management for vessel "L",
including recruiting and training of crews, supervising
repairs and maintenance of the vessel and giving guidance
to the ship master for the designated ports.
(b)
Vessel "G"
i.
Company C entered into a time charter
agreement with Company D, a third party in the Mainland,
for chartering of vessel "G" for about 36
to 38 months.
ii.
Under the time charter agreement, vessel
"G" is allowed to navigate throughout the
world.
iii.
Similar to vessel "L", Company
C also appointed Company S as the vessel manager of
vessel "G" for the provision of all general
vessel management services.
(c)
All the time charter agreements
and management agreements were negotiated and concluded
by Company A or Company C outside Hong Kong.
(d)
Both vessels have never entered into Hong
Kong waters and there is no plan for them to navigate
between any location within the waters of Hong Kong and
any location within river trade waters in the foreseeable
future.
4. The ruling
The charter hire income derived
by Company C from the chartering of vessels "L"
and "G" are not included as relevant sums as
defined under section 23B(12) of the Ordinance. Such income
is not chargeable to Hong Kong Profits Tax under section
23B(3) of the Ordinance.
5. The period for which the ruling applies
The above ruling will apply for
the years of assessment 2005/06 and 2006/07.
6.
The
material assumptions in respect of a future event or any
other matter made by the Commissioner
The Commissioner assumes that the
two vessels "L" and "G" continue to
navigate between locations outside Hong Kong waters.
7. Date of ruling issued
19 March 2007.
8. Commentary
In the present case, the vessels
concerned have never entered into Hong Kong waters. The
charter hire income derived by Company C from the chartering
of the vessels are therefore not included as "relevant
sums" as defined under Section 23B(12) of the Ordinance.
(This commentary is not a legally
binding statement and it does not form part of the Ruling.)
|