Advance Ruling Case No. 70

1. The provisions of the Ordinance

The ruling applies in respect of section 15K of the Inland Revenue Ordinance (“IRO”).

2. Background

(a)

The Applicant and four other entities belonging to the same group (“the Other MNE Entities”) are private limited companies incorporated in Hong Kong and their ultimate parent entity is listed on the Stock Exchange of Hong Kong.

(b)

Each of the Applicant and the Other MNE Entities is carrying on a business of investment holding in Hong Kong, and holds a wholly-owned subsidiary in Jurisdiction F for holding properties there.

(c)

The Applicant and the Other MNE Entities are MNE entities as defined in section 15H(1) of the IRO. They are not pure equity-holding entities as defined in section 15K(3).

(d)

Each of the Applicant and the Other MNE Entities will derive offshore dividend incomes (“the Dividends”) from their respective subsidiaries in Jurisdiction F. The Dividends will be specified foreign-sourced income as defined in section 15H(1) of the IRO.

(e)

The Applicant filed an application on a group basis for itself and the Other MNE Entities to seek an advance ruling on compliance with the economic substance requirement under section 15K of the IRO.

3. The arrangement

(a)

The Applicant and the Other MNE Entities arrange their specified economic activities, as defined in section 15K(3) of the IRO, to be carried out in Hong Kong. Their specified economic activities are making necessary strategic decisions in respect of the assets they acquire, hold or dispose of, and managing and bearing principal risks in respect of the relevant assets.

(b)

By a single service agreement, the specified economic activities of the Applicant and the Other MNE Entities are outsourced to an associated servicer provider (“the Service Provider”) in Hong Kong.

(c)

Each of the Applicant and the Other MNE Entities has planned to:

(i)

have a predetermined number range of employees with necessary qualifications to carry out the specified economic activities in Hong Kong each year;

(ii)

incur a predetermined amount range of annual operating expenditures in Hong Kong for the specified economic activities; and

(iii)

undertake adequate monitoring of the specified economic activities carried out in Hong Kong by the Service Provider.

4. The ruling

The Applicant and the Other MNE Entities will satisfy the economic substance requirement under section 15K of the IRO.

5. The period for which the ruling applies

The ruling will apply for the years of assessment 2023/24 to 2027/28.

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

There is no assumption made by the Commissioner.

7. Date of ruling issued

26 June 2023