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Advance Ruling Case No. 42

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 Applicant was incorporated in Hong Kong and commenced business before 1 April 1974.
(b) The Applicant makes up its accounts to 31 March annually.

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3. The arrangement 

(a) The Applicant will change its accounting date from 31 March to 31 December in the year of assessment 2009/10.
(b) The Applicant has put forward the following reasons for the proposed change of accounting date:
  (i) for administrative efficiency;
  (ii) to conform to the financial year end date of the group companies in the Mainland of China which is set as 31 December under the Mainland law; and
  (iii) to facilitate the Applicant to prepare its consolidated financial statements.


4. The ruling

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


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5. The period for which the ruling applies

  This ruling applies to the Applicant 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 

  15 January 2010.


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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 before 1 April 1974, a basis period of twelve months should be maintained for all years of assessment unless there is tax avoidance motive. Hence, in the present case for the year of change, a twelve-month basis period is adopted for the Applicant. 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.)