section 14 of the Ordinance, every person who carries
on a trade, profession or business in Hong Kong is chargeable
to Profits Tax on the profits arising in or derived
from Hong Kong from such trade, profession or business.
Section 15(1)(f) of the Ordinance deems sums received
by or accrued to a corporation carrying on a trade,
profession or business in Hong Kong by way of interest
derived from Hong Kong to be chargeable receipts.
For the purpose of determining the place where interest
arises or is derived from, it is the location of the
originating cause that normally determines the source.
Basically, the place of derivation of interest is
the place where the credit was provided to the borrower,
i.e., the place where the funds from which the interest
is derived were provided to the borrower, commonly
known as the "provision of credit" test.
This test, however, is not applicable where the loans
are not simple loans of money. In the case of a money
lending business, the Department will apply the operation
test in determining the source of the interest income.
In the present case, the Company is not carrying
on a money lending business but just receives interest
income by placing its surplus funds with Company A.
The "provision of credit" test will apply
in determining the source of the interest income.
Since the credit is provided to Company A outside
Hong Kong, the interest income does not arise in Hong
Kong and thus is not chargeable to Hong Kong Profits