(外资企业批准书).docVIP

Case No. D111/03 Profits tax – whether profits arising in or derived from Hong Kong – goods manufactured in the mainland – whether concession under Inland Revenue Departmental Interpretation and Practice Note No 21 (DIPN21) applicable – whether companies within same group of companies can be treated as same entity. Panel: Anna Chow Suk Han (chairman), Benny Kwok Kai Bun and Horace Wong Ho Ming. Date of hearing: 16 December 2003. Date of decision: 30 March 2004. The taxpayer was a private company in Hong Kong. Its principal activity was trading of toys. The taxpayer purchased raw material and sold them to Company B which manufactured toy products in the mainland. The taxpayer then purchased the products from Company B with a mark-up. It is not in dispute that the taxpayer and Company B belonged to the same group of companies. Held: 1. The Board found there was no processing or assembly arrangement between the taxpayer and Company B. Neither did the taxpayer pay any processing fee to Company B. Thus, Company B’s manufacturing activities could not be treated as those of the taxpayer (DIPN21 considered). 2. The Board did not accept that the taxpayer and Company B should be regarded as one entity. They were in form and substance separate and independent entities and distinct from each other. Thus, the taxpayer’s profits were not derived from the manufacturing activities in the mainland (Yick Fung Estates Ltd v CIR; FCT v Spotless Services Ltd considered). Appeal dismissed. Cases referred to: D163/01, IRBRD, vol 17, 286 Firestone Tire Rubber Co of Canada v CIT [1942] 4 DLR 433 Yick Fung Estates Limited v CIR [2000] 1 HKC 588 FCT v Spotless Services Limited 96 ATR 5201 Adams v Cape Industries Ltd [1990] CH 433 Bank of Tokyo Ltd v Karoon [1987] AC 45 Eugene Fung Counsel instructed by Department of Justice for the Commissioner of Inland Revenue. Hylas Chung Counsel instructed by Messrs Huen Partners for the taxpayer. Decision: The appeal 1. Company A (‘the Taxpay