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Publications
and Press Releases : Advance
Ruling Cases : Advance Ruling Case No. 35
Advance Ruling Case No. 35
| 1. |
The
provisions of the Ordinance |
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This ruling applies in respect
of section 14 of the Inland Revenue Ordinance. |
| 2. |
Background |
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(a) |
The Company was incorporated in Country A. It is engaged in the manufacture and sale of printing machinery and spare parts for such machinery. |
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(b) |
The Company manufactures spare
parts in Country A. Apart from its own manufacture, the
Company also purchases spare parts from ex-Hong Kong suppliers. |
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(c) |
The spare parts are sold by the Company to its global subsidiaries which act as distributors in their local markets. |
| 3. |
The
arrangement |
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(a) |
The Company will
locate a stock of the spare parts in Hong Kong on the
premises of an independent Warehouse Manager ("the
Warehouse Manager") to facilitate the distribution
of these products to subsidiaries in the Asia Pacific
region. |
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(b) |
The Warehouse Manager will
neither display nor provide information regarding the
stock. It will not communicate with customers of the Company.
It will not be involved in any negotiation or conclusion
of purchase or sale orders on behalf of the Company. |
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(c) |
The Warehouse Manager will
merely store the products safely and pack the products
for shipment upon instruction from the Company in Country
A. The Company will, in Country A, negotiate directly
with the third party carriers for delivery of the spare
parts from the Hong Kong stockpile to the customers. |
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(d) |
The Company will not maintain
any office, employ any staff nor appoint any agent in
Hong Kong in regard to the purchase and sale of the spare
parts. |
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(e) |
All the purchases and sales
of the spare parts will be negotiated and concluded by
the Company in Country A. All paperwork and banking activities
relating to purchases and sales will be handled in Country
A. |
| 4. |
The
ruling |
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The Company will not be chargeable to Profits Tax under section 14 of the Inland Revenue Ordinance in respect of the profits it derives from the trading of such spare parts located in Hong Kong. |
| 5. |
The
period for which the ruling applies |
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This ruling will apply from the year of assessment during which the stockpile will be created, expected to be 2007/08 and all future years of assessment. |
| 6. |
The
material assumptions in respect of a future event or any
other matter made by the Commissioner |
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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 |
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30 August 2007. |
| 8. |
Commentary |
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Under Section 14 of the Inland Revenue Ordinance, 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 did not effect any purchases and sales of spare parts in Hong Kong. The creation of a Hong Kong stockpile at the premises of a third party warehouse manager would not alter the offshore nature of profits derived from the trading of spare parts. Therefore Section 14 does not apply. |
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(This commentary is not a legally binding statement and it does not form part of the Ruling.) |
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