Hong Kong Shue Yan University

HONG KONG SHUE YAN UNIVERSITY

BUS 405 TAX PLANNING

Homework 5

Question 1

State and explain whether the following items of income derived during the year of assessment 2011/12 are chargeable to Hong Kong profits tax:

(i) Interest on money placed on a 24-hour call deposit by the sole proprietor of a bakery business (carried on in Hong Kong) with the Tsimshatsui Branch of Bank of China (Hong Kong). The money was intended for settling the flour bill upon receipt of the demand note from the supplier. The deposit was not used to pledge for any bank borrowing. Instead the sole proprietor had made personal guarantee to the bank for obtaining fund to finance the bakery business.

(ii) Interest on money placed on call deposit by Tasty Bakery Company Limited with the Shenzhen branch of Bank of China. Tasty Bakery Company Limited carries on business in Hong Kong and the deposit money represents its daily sale money earned from the Hong Kong shops.

(iii) Interest from fixed deposits placed with the Causeway Bay branch of HSBC Bank by an oversea company's Hong Kong branch. The branch was responsible for promoting the company's toy products in the Hong Kong market. The deposits have been used to secure for the bank borrowings and interest expenses on such borrowings are deductible under profits tax.

(iv) Lion (US) Corp. is the owner of the trademark "LION" registered in the United States, Hong Kong and other countries. Lion (US) has never carried on any business in Hong Kong. It has a subsidiary in Hong Kong, Lion (HK) Ltd, which arranged for goods to be manufactured in Hong Kong and the mainland China. The trademark "LION" had been applied to the goods during the manufacturing process.