Aug 2016, Issue 8
In Board of Review Case D28/14, the Board held that the trading profits derived by a Hong Kong company (i.e. the taxpayer) were sourced in Hong Kong on the bases that (1) the effective cause giving rise to the taxpayer’s profits was the bringing together the complementary needs of the manufacturer in the PRC and the overseas customers, (2) the taxpayer failed to substantiate that the purchase and sales contracts were effected outside Hong Kong and (3) considerable trade-related activities were performed by the taxpayer in Hong Kong.
With the more stringent approach taken by the IRD in examining the offshore claims lodged, taxpayers should be mindful of (1) the possible detailed questions raised by the IRD, (2) the importance of keeping sufficient documentary evidence to discharge the burden of proof and (3) the necessity of formulating a strategy of defending their offshore claims where there are supporting business activities in Hong Kong.
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