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Advance Ruling Case No. 36

1. The provisions of the Ordinance

  This ruling applies in respect of section 14 of the Inland Revenue Ordinance ("IRO").

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2. Background

(a) X Group's main business is fish trading. The Group has business operations in various countries and its management team is based in Europe.
(b) Y Ltd. is a member of X Group. It has been carrying on business in Europe in managing the product requirements of the companies within X Group.
(c) X Group has started sourcing fish in Asian countries. The Company was formed in order to manage and expand X Group's supplier-base in Asia.

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3. The arrangement 

(a) Pursuant to an agreement made between the Company and Y Ltd. ("the Agreement"), the Company will receive remuneration from Y Ltd. for providing to Y Ltd. sourcing, procurement support, and other services set out in the Agreement.
(b) The Company will employ local staff in Asian countries where suppliers are located to perform all the services under the Agreement. It will not maintain any office, employ any staff, appoint any agent nor operate any bank account in Hong Kong as long as there is no supplier in Hong Kong.

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4. The ruling

  The profits to be derived by the Company in providing the services under the Agreement will not be chargeable under Hong Kong profits tax provided that no service will be rendered by the Company in Hong Kong, and there is no supplier in Hong Kong.

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5. The period for which the ruling applies

  This ruling will apply with effect from the year of assessment 2008/09 and subsequent years of assessment up to the termination of the Agreement.

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

  There are no assumptions made by the Commissioner.

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7 . Date of ruling issued 

  5 March 2008.


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8. Commentary 


Under Section 14 of the IRO, 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. For service fee income, the source of profits is the place where the services are performed which give rise to the service fee income. In the present case, the profits to be derived by the Company from the Agreement will not be chargeable to profits tax as the relevant services will be performed outside Hong Kong.

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