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Advance Ruling Case No. 49

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 five of its subsidiaries, namely Company B, C, D, E and F.
(b) Company A is a company incorporated in Hong Kong in the 1980s. It has nine subsidiary companies of which six (including Company B to E) were incorporated in Hong Kong, one (i.e. Company F) in Country X, one in Country Y and one in the Mainland of China ["the Mainland"].
(c) Company D and Company E each has a wholly owned subsidiary company which was incorporated in the Mainland in 2009 and 2005 respectively. Company B has two wholly owned subsidiary companies both of which were incorporated in the Mainland in 2011. As stipulated under the laws of the Mainland, these four Mainland companies and the Mainland subsidiary mentioned in 2(b) above all have 31 December as their accounting date.
(d) All the Applicants were incorporated and commenced business after 1 April 1974. They have 31 March as their accounting date up to and including the year ended 31 March 2011.
(e) With the number of subsidiary and sub-subsidiaries in the Mainland increased to five in 2011, the Board of Directors of Company A resolved in late 2011 to have its accounting date and that of its subsidiaries incorporated outside the Mainland changed from 31 March to 31 December for the reasons set out in (3)(b) below.

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3. The arrangement 

(a) The Applicants have decided and will change their accounting date from 31 March to 31 December in the year of assessment 2011/12. Their accounts for the year of assessment 2011/12 will cover the nine-month period from 1 April 2011 to 31 December 2011.
(b) The Applicants proposed to change the accounting date on the following grounds :
  (i) The new accounting date will be the same as the statutory accounting date of the subsidiaries in the Mainland.
  (ii) The change will alleviate the time pressure for and reduce the problems arising on preparation of consolidated accounts.
  (iii) The change will facilitate financial analysis of the Group with a view to assisting the management to make forward plans.

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4. 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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5. The ruling

(a) The Commissioner will adopt the nine-month period from 1 April 2011 to 31 December 2011 as the basis period of the Applicants for the year of assessment 2011/12.
(b) The Commissioner will adopt or continue to adopt the twelve-month period from 1 April 2010 to 31 March 2011 as the basis period of the Applicants for the year of assessment 2010/11.

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6. 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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7 . Date of ruling issued 

  1 February 2012.


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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.)