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Advance Ruling Case No. 51


1. The provisions of the Ordinance

  This ruling applies in respect of section 18E of the Inland Revenue Ordinance ("IRO").

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2. Background

(a)
The Applicants are members of a group of companies, some of which commenced businesses before 1 April 1974 (the “Old Businesses”) while others commenced businesses on or after 1 April 1974 (the “New Businesses”).
(b)
Most of the group companies, including the Applicants, make up their accounts to 30 June annually. One of the Applicants, Company X, makes up its accounts to 31 March.

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3. The arrangement 

(a) The group and accordingly the Applicants have changed their accounting date from 30 June (31 March, in the case of Company X) to 31 December in the year of assessment 2011/12.
(b) The group has put forward the following reasons for the change of accounting date:
 
(i) to conform to the accounting date of their Mainland entities; and
 
(ii) to improve administrative efficiency, reduce administrative costs and facilitate the preparation of consolidated financial statements.
(c) Among the Old Businesses, 5 Applicant companies’ accounts show that they are dormant and/or do not have any assessable profits/adjusted losses for Profits Tax purposes throughout the period from 1 July 2009 to 31 December 2011.

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4. The material assumptions in respect of a future event or any other matter made by the Commissioner

  Each of the 5 Applicant companies in 3(c) above has no assessable profits / adjusted losses for Profits Tax purposes throughout the period from 1 July 2009 to 31 December 2011.

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5. The ruling

(a) For those Applicant companies which are New Businesses with 30 June as their accounting date,
 
(i) the Commissioner will adopt the 18-month period from 1 July 2010 to 31 December 2011 as the basis period for the year of assessment 2011/12; and
 
(ii) the Commissioner will adopt or continue to adopt the 12-month period from 1 July 2009 to 30 June 2010 as the basis period for the year of assessment 2010/11.
(b) For the remaining Applicant company which is a New Business, namely Company X, with 31 March as its accounting date,
 
(i) the Commissioner will adopt the 9-month period from 1 April 2011 to 31 December 2011 as the basis period for the year of assessment 2011/12; and
 
(ii) the Commissioner will adopt or continue to adopt the 12-month period from 1 April 2010 to 31 March 2011 as the basis period for the year of assessment 2010/11.
(c) For the 5 Applicant companies in 3(c) above which are Old Businesses with 30 June as their accounting date and are dormant and/or do not have any assessable profits and/or adjusted losses for Profits Tax purposes throughout the period from 1 July 2009 to 31 December 2011,
 
(i) the Commissioner will adopt the 12-month period from 1 January 2011 to 31 December 2011 as the basis period for the year of assessment 2011/12; and
 
(ii) the Commissioner will adopt or continue to adopt the 12-month period from 1 July 2009 to 30 June 2010 as the basis period for the year of assessment 2010/11.

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6. The ruling declined

 
The Commissioner declined to make a ruling in respect of:
 
(a)
the Applicant companies which are Old Businesses with assessable profits and/or adjusted losses for Profits Tax purposes for the period from 1 July 2009 to 31 December 2011; and
 
(b)
whether the provision of section 61A of the IRO should apply to all the Applicant companies including the New Businesses;
 
because the correctness of the ruling would depend on the making of assumptions about the seven factors laid down in section 61A of the IRO, the trading results of the Applicant companies, the amount of profits that would be dropped out in the year of change/year preceding the year of change, and/or the deferment in tax payments.

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7. The period for which the ruling applies

  This ruling applies to the Applicants for the years of assessment 2010/11 and 2011/12.

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8 . Date of ruling issued 

  23 July 2012

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9. Commentary 

 

Section 2 in Part 1 of Schedule 10 of the IRO provides that the Commissioner may decline to make a ruling if he considers that the correctness of the ruling would depend on the making of assumptions in respect of a future event or any other matter. In the present application, assumptions have to be made on the seven factors in section 61A of the IRO, the trading results and the amount of profits that would be dropped out in the year of change/year preceding the year of change, and/or the deferment in tax payments for those Old Businesses that have assessable profits and/or adjusted losses for Profits Tax for the period from 1 July 2009 to 31 December 2011. In this connection and so far as the Old Businesses are concerned, ruling is only given to those Applicant companies that are dormant and/or do not have any assessable profits and/or adjusted losses for Profits Tax purposes throughout the period from 1 July 2009 to 31 December 2011.

(This commentary is not a legally binding statement and it does not form part of the Ruling.)