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Advance Ruling Case No. 5

1. The provisions of the Ordinance

  This ruling applies in respect of sections 14 and 61A of Inland Revenue Ordinance ("IRO").


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2. Background

(a) X Ltd. was incorporated in Hong Kong on 18 September 1986. Its principal business activity is the trading and distribution to independent customers of pulp, paper and related products which are sourced within its Group companies.
(b) X Ltd.'s ultimate holding company is H Ltd., a company incorporated in the Republic of South Africa.
(c) S Ltd., another company within the Group, is based in Austria and controls the Group's fine paper mills located in various countries.
(d) With the objective to develop new markets and expand its operations and capabilities in respect of the marketing of fine paper products, S Ltd. intends to acquire the trading business from X Ltd.

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3. The arrangement 

(a) On or before 30 September 2001, X Ltd. will enter into an agreement with S Ltd. outside Hong Kong for the sale and purchase of the entire business as a going concern and all its relevant assets and liabilities at a consideration of approximately US$250 million. X Ltd. will cease business and will be wound up once the sale of the business is completed.
(b) On or before 1 October 2001, S Ltd. will set up a branch in Hong Kong to conduct business. The mode of operation will adhere closely to that of X Ltd.

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4. The ruling

(a) Any gain realized on the sale of the business by X Ltd. to S Ltd. is capital in nature and non-taxable under section 14 of the IRO.
(b) The proposed arrangement is not one which would fall within the terms of section 61A of the IRO.


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5. The period for which the ruling applies

  This ruling will apply for the year of assessment 2001/02.

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

  S Ltd. will not claim any deduction in respect of the consideration or any part thereof paid to X Ltd. in arriving at its assessable profits arising in or derived from Hong Kong.

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7 . Date of ruling issued 

  13 September 2001.