Taxation

ACC 5004 - L02

Taxation

Group Assignment

Cheng Ho Lam, Plum 18130199

Chow Kai Hei 18120282

Lee Ho Nam, Fiona  18130135

Leung Kan Yan, Dominique 2000193

Mak Hing Yee, Rosebel 18120067

Wong Man Hin, Yellow 18130149                                                                                            

Background

Question A:

Resell in the USA, and Asia, including Hong Kong

According to the Inland Revenue Ordinance Chapter 112 Section 14 (1), the profits tax shall be charged on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this part.  For the resell watches in the USA, since Superior Watches Limited (“Superior”) is a trading company carrying business in the USA, the trading transaction is completed in the USA. Profit tax should be exempted in Hong Kong.

For the resell of watches in Asia, it should define the transaction location that only transactions made in Hong Kong should be taxable in that year of assessment.  Since the reselling business in Asia is including Hong Kong, the company should calculate the percentage which is the profit that was made in Hong Kong.  Therefore, the transaction conducted in Asia (except Hong Kong) should not be taxable in terms of profit tax.

Adam Agent Limited (AAL)

When income is deemed to be chargeable under Section 15 of Inland Revenue Ordinance, the Inland Revenue Department ("IRD") will consider that an agent of a non-resident who has general authority to negotiate and conclude contracts of sales or purchases on behalf of the non-resident, the non-resident is deemed to be carrying on business in Hong Kong.

According to the Inland Revenue Rules ("IRR") Rule 5, the agent has habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal or has a stock of merchandise from which he regularly fills orders on his behalf is called, "permanent establishment" ("PE").

Therefore, Adam Agent Limited ("AAL") is a PE because it is appointed by Superior as its buying agent in Hong Kong, and AAL has the responsibility to negotiating terms, placing purchase orders with PRC supplier, arranging shipment of goods either to Superior in the USA or directly to customers outside the USA according to the directions given by Superior. It shows that AAL represents Superior to negotiate terms with suppliers, arrange purchases and shipment.