Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Profits Tax Guide  - Source of profit

Section 14 of IRO: Profits tax is payable on all profits having a Hong Kong source that are generated from a trade, profession or business in Hong Kong. A profit having a Hong Kong source means it is  arising in or derived from Hong Kong.

Section 2(1) of IRO:  All profits from business transacted in Hong Kong, whether directly or through an agent, are deemed to be profits arising in or derived from Hong Kong.

"Source of profit" is a question of facts as well as a question how to draw conclusion from the facts based on the principles as developed in numerous tax cases. Indeed it is a big topic of taxation for big companies which are engaged in activities across the border of Hong Kong. For companies operating in Hong Kong only, the Revenue will generally seek to assess their whole profits and will not allow offshore claim except in rare cases.    

In the case CIR v. Euro Tech (Far East) Ltd, it was held that profit arose in Hong Kong even though the activities in Hong Kong are minimal or they just comprise administrative work.  The crucial point is what and where he did to earn the profit.  

Before dwelling on the law and practice, I would like you to understand that this topic is sometimes controversial and there are no one single hard and fast rule applicable to every case. Different professionals, including judges, lawyers, tax practitioners and even IRD officers may draw different conclusions in the same case. There are of course some general rules developed from case law and I will talk about them later.

My general advice for an ordinary taxpayer is: follow as far as possible the general rules, particularly those set out on my website and my tax books as well those in the Revenue's Departmental Interpretation Note 21. This is because any disputes going to the court are very costly, troublesome and time-consuming. For your easy reading, I have tried my best to make these general rules simple. Please Click here to read my guidance notes. Happy reading.

Also read the following:

CIR v. Hong Kong & Whampoa Dock *  CIR v. International Wood Products

CIR v Karsten Larssen & Co *  Sinolink Overseas Ltd. v CIR

CIR v. Hang Seng Bank Ltd * CIR v. HK-TVB International Ltd 

Bank of India v. CIR  *  CIR v. Magna Industrial Company Ltd   

Exxon Chemical International Supply SA v CIR Kwong Mile Services Limited v CIR

CIR v. Euro Tech (Far East) Ltd *  CIR v Orion Caribbean Ltd

Wardley Investment Services (Hong Kong Limited) v CIR

CIR v Emerson Radio Corporation  

Source of profit - Source of trading profit

Source of profit - Source of manufacturing profit   

Source of profit - Source of interest income

Source of profit - Miscellaneous incomes

Press here to explore


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