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Advance Ruling Case No. 63

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

The Applicant was incorporated in Hong Kong and commenced business after 1 April 1974. It makes up its account to 31 March annually.
The holding company of the Applicant adopts 30 June as its accounting date.

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3. The arrangement 

(a) The Applicant proposed to change its accounting date from 31 March to 30 June in the year of assessment 2016/17.
(b) The Applicant put forward the following reasons for the proposed change of accounting date:
(i) to conform accounting date with its holding company; and
(ii) to reduce the administrative works of the holding company.

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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 3-month period from 1 April 2016 to 30 June 2016 as the basis period of the Applicant for the year of assessment 2016/17.
(b) The Commissioner will adopt the 12-month period from 1 July 2016 to 30 June 2017 as the basis period of the Applicant for the year of assessment 2017/18.
(c) The Commissioner will not recompute the adjusted loss of the Applicant for the year of assessment 2015/16.
(d) The assessments for 2016/17 and 2017/18 will be based on the financial statements for the 15-month period from 1 April 2016 to 30 June 2017.

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6. The period for which the ruling applies

  This ruling applies to the Applicant for the years of assessment 2015/16 to 2017/18.


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7 . Date of ruling issued 

  2 February 2018

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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 3-month basis period is adopted. For the year preceding the change, the Commissioner considers it not necessary to recompute the adjusted loss. 

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