| 2. |
Background |
|
|
(a) |
The Company is incorporated
in Country X and is a member of an international group.
It has registered a branch in Hong Kong ("the Branch"). |
| |
(b) |
The Company imported goods
from affiliated companies and sold them to customers all
in Country X. |
| |
(c) |
The Branch is set up to fulfill
requirements of the Company's customers in Country X so
that they can manage by themselves the import related
logistics in a more efficient manner. |
| |
(d) |
Other than the registered
address, the Company does not maintain any office in Hong
Kong. Neither does it employ any employees nor agents
here. All the sales and purchase transactions are carried
out by the Company's staff in Country X. These are assisted
by the computer ordering system. |
| |
(e) |
By using the Branch, the Company
benefits from shorter payment terms from the customers
under the said arrangement as compared with the local
payment terms that are usually 2 to 3 times longer. |
| 3. |
The
arrangement |
|
|
(a) |
Prospective customers
of Country X will issue notice of procurement schedule
for vendors to bid. The Company will prepare for the bidding
and its key account managers will discuss the price and
product configuration with the customers in Country X. |
| |
(b) |
Upon a successful bidding,
sale and purchase contracts in the name of the Branch
will be prepared by the Company and signed by its general
manager on behalf of the Branch and the customers in Country
X. |
| |
(c) |
According to the sale and
purchase contracts, the staff of the order desk of the
Company in Country X will input the orders from customers
into the ordering system. Upon the input, purchase orders
in the name of the Branch will automatically be generated
and sent to affiliated suppliers. Purchase prices are
set by using the resale price (or market minus) method
under the transfer pricing guidelines as developed by
the Organization of Economic Cooperation and Development.
There will not be any purchase from suppliers in Hong
Kong. |
| |
(d) |
Goods are delivered by the
suppliers directly to the customers in Country X, without
transshipment through Hong Kong. The Company in Country
X will monitor the detailed delivery status. All shipping
documents and suppliers' invoices are sent to the Company
in Country X for input to the ordering system. The customers'
invoices in the name of the Branch will also be issued
in Country X. |
| |
(e) |
After the delivery of the
goods to the customers, the Company will install the equipment
and provide after-sales services for the customers in
Country X. |
| |
(f) |
The Company in Country X will
decide on the credit limit extended to customers. For
those sales under letter of credit terms, the letter of
credit will be negotiated to the bank of the Branch by
the Company's finance staff in Country X. Outstanding
debts from the customers will be monitored and followed
up by the Company in Country X. |
| |
(g) |
Upon the approval of payment
by the Company's financial controller located in Country
X, payments to suppliers are made with the assistance
of a shared service centre in Country Y. |
| |
(h) |
The Company's financial controller
will operate the bank account of the Branch to be opened
for the trading of goods. |
| |
(i) |
The Branch books the profit
derived from the sales and purchase transactions invoiced
in its name. Bookkeeping and accounting for transactions
of the Branch will be handled by the service centre and
approved by the Company's financial controller in Country
X. |
|