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Advance Ruling Case No. 41

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 Company A and its six subsidiaries. They were all incorporated in Hong Kong and commenced business after 1 April 1974.
(b) Company A has fourteen subsidiaries. Nine were incorporated in Hong Kong, one in Country X, one in Country Y and the remaining three in the Mainland of China.
(c) The Applicants make up their accounts to 31 March annually.
(d) The three subsidiaries incorporated in the Mainland of China are the major assets of the group. Their accounting dates were compulsorily set as 31 December under the Mainland laws and cannot be changed.

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3. The arrangement

(a) The Applicants will change their accounting dates from 31 March to 31 December in the year of assessment 2009/10. Their accounts for the year of assessment 2009/10 will cover the nine-month period from 1 April 2009 to 31 December 2009.
(b) The Applicants proposed to change the accounting date on the following grounds:
  (i) To enable the accounting date of all group companies to conform with each other. This will alleviate the time pressure for and reduce the problems arising from consolidated reporting.
  (ii) To facilitate financial analysis of the group which will assist the management of the group to plan for the future.

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4. The ruling

(a) The Commissioner will adopt the nine-month period from 1 April 2009 to 31 December 2009 as the basis period of the Applicants for the year of assessment 2009/10.
(b) The Commissioner will continue to adopt the twelve-month period from 1 April 2008 to 31 March 2009 as the basis period of the Applicants for the year of assessment 2008/09.


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5. The period for which the ruling applies

  This ruling applies to the Applicants for the years of assessment 2008/09 and 2009/10.

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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 

  4 December 2009


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8. Commentary


Under section 18E of the IRO, where the assessable profits of a person from any trade carried on in Hong Kong have been computed by reference to an account made up to a certain day in any year of assessment and the person fails to make up an account to the corresponding day in the following year of assessment, the assessable profits from that source for the year of change and the year preceding the change shall be computed/ recomputed on such basis as the Commissioner thinks fit. For businesses which commence after 1 April 1974, the aim is to ensure that profits not less than the total profits made over the life of the business are assessed. Hence, in the present case for the year of change, a nine-month basis period is adopted. For the year preceding the change, the Commissioner considers it not necessary to recompute the profits.

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