Profits Tax - Management fee
to read tax guide:
excessive remuneration. In fact, these two topics are related.
paid to a building management company for managing the premises used
by the taxpayer for production of assessable profits is deductible.
This is seldom a tax problem.
What is at issue on this topic is
the management fee paid to a closely-connected “service company” for
managing an unincorporated business. This is because such payments
are often used to avoid tax. See the following example.
unincorporated business ABC & Co. made a $2,000,000 profits. To
reduce the assessable profits, the business owners set up
another unincorporated business XYZ & Co. to manage its
business. Then, ABC paid $1,500,000 management fee to XYZ, thus
reducing ABC's assessable profits to $500,000. Then, XYZ paid
the business owners and their relatives remuneration and
provided them free accommodation and a lot of non-cash benefits.
With the personal allowances, graduated tax rates, non-taxable
benefits... etc. under Salaries Tax, their total tax
liabilities were dramatically reduced.
If the tax
benefit is considerable, the Revenue will argue that the management
fee is too excessive to justify a deduction because it is not
incurred for the production of assessable profits, but for the
avoidance of tax. In such case, the Revenue may invoke
anti-avoidance law to counteract the tax