【Zetland Tax Advisors News】HK Offshore Tax Claims

1406_HKHong Kong has a simple and low tax regime which is known for its territorial source principle (Inland Revenue Ordinance IRO Section 14): Every person who carries on a trade, profession or business in Hong Kong is chargeable to profits tax on the profits arising in or derived from Hong Kong. Conclusively, profits that are not sourced in Hong Kong are not taxable.
While the principle is simple, its actual application can be very complex and answering the question where the source or locality of profits of a Hong Kong company, in particular in today’s globalized markets, are, is often fought out in court.

Case law has established today’s guiding principles for determining the locality of trading profits. In the Hang Seng Bank case it has been established that the determining factor is the place where the contracts for purchases and sales are effected. Although the meaning of ‘being effected’ may be subject to different interpretations, the sale and purchase acts are determined as being the important operations producing trading profits. The Inland Revenue Board of Review in their decision in 1989 identified dominant factors to which should be applied to determine the locality of profits: 1) the place where negotiations for sale of goods took place; and 2) the place where the goods were acquired and the negotiations took place for acquisition. The Board of Review found in the same decision that it does not matter for the determination of the locality of profits that the contracts for sale were legally effected in Hong Kong and that the Hong Kong company financed the sales of goods, being ancillary activities. The Magna Industrial Co. Ltd case confirmed that in determining the locality of profits, one looks to see what the taxpayer has done to earn the profits and where he has done it. This does not only mean the legal execution of contract, but all relevant operation carried out to earn the profits, including the solicitation of orders, negotiation, conclusion, trade financing, shipment and performance of contracts. Further in the ING Baring case the courts clarified that, when determining the locality of profits the focus should be on the geographical location of the important activities which give rise to the relevant profits rather than on antecedent or incidental activities. The courts again confirmed these guiding principles in the Li & Fung case in 2012.

The Inland Revenue Department (IRD) reiterates the guiding principle to determine the locality of profits in their own interpretation and practice note (DIPN 21) where it further determines that apportionment of trading profits is not applicable.

The recently published Advance Ruling Case No 54 by the Inland Revenue Department concerns whether the profits of a Hong Kong company in connection with the trading activities of a group of related companies is taxable under Hong Kong’s tax regime. The ruling of the department in this case is what sets it apart from other cases in the past, quite to the surprise of most tax professionals in Hong Kong and potentially indicating a wider application of the tax base.

The facts of the case can be summarized as follows:

The taxpayer is a Hong Kong company which purchases garments from related overseas manufacturers and resells them to unrelated overseas customers. The taxpayer established a branch office outside of Hong Kong which concludes the sales and purchase transactions as well as monitors the production and shipping procedures. A to the taxpayer related company established in a foreign jurisdiction coordinates the marketing activities and negotiates the sales terms. In the sales invoices Hong Kong is shown as the port of loading and country of origin.

The operation of the taxpayer is limited to managing the bank account, i.e. to make and receive payments, handling letters of credit and other banking documentation, obtaining receivable finance from banks in Hong Kong and keeping records. The taxpayer shares an office with another Hong Kong company which is owned by the same shareholders. This other company guarantees the receivable finance and its directors sign all banking documents.

The department commented on its ruling of the company being chargeable to Hong Kong profits tax that:

  1. The business of a trading company is recognized as involving the effecting of the contracts of purchase and sale. The concept “effecting” should involve more than the decision to accept an offer. It should be comprehended that obtaining trade facilities from banks is to give effect to the terms and conditions of the contracts of purchase and sale. The negotiation and settlement of trade debts are an integral part of a trading company’s business
  2. The Company’s Hong Kong office operates bank accounts in Hong Kong and negotiates trading documents with the bank for receivable finance. It handles all banking documents in Hong Kong to give effect to the settlement of the trading transactions. The operations of the Company enable the group to obtain trade finance with lower cost. It is the operations performed in Hong Kong that enable the Company to earn the profits in question.
  3. If all parties involved have been attributed an arm’s length rate of profit having regard to their functions, assets and risks, it will be hard to conclude the profits attributed to the Company in Hong Kong should have a source outside Hong Kong.

The full text of the Advance Ruling case can be found at the IRD website:

Although Advance Rulings are not legally binding and only relate to the specific case the ruling was sought for, tax practitioners in Hong Kong agree that this case may be the indication of a more stringent approach of the department in assessing offshore claims.

Zetland Tax Advisors Limited can assist reviewing your existing or planned offshore operations and advise on Hong Kong and international tax matters. For further information please contact us at

香港は税率が低く税制システムも簡潔でいわゆる領土内取得課税主義(territorial source principle)を取っています。すなわち、全ての人において事業活動(Trade, Profession or business)を香港で行っている場合において利益が香港における事業活動から生じたものに対し課税されるというルールです。従って香港以外で得られた利益(オフショア所得)は非課税となります。



1) 商品販売の交渉が行われた場所

2) 販売された商品の仕入先と販売交渉が行われた場所

当局の判断では香港法人が付属的な役割しか担っていなくとも香港法人が出資している場合において、また締結された契約書が香港で合法性を持っていたとしても国内利益とする判断には影響しないとしています。Magna Industrial Co. Ltdのケースでは国内利益の判断基準として単に契約書の締結地のみではなく実質的な交渉の過程や諸々の営業活動も考慮に含まれるということを示しています。更にING Baringのケースでは国内利益の判断は、仮定的または付属的な活動よりも営業活動が行われた地理的な要因の方が重要な判断材料であるとしています。これは2012年のLi & Fungのケースにて更に強まった判断要因の一つでもあります。

また国内利益に含まれない基準に関しては香港税務局解釈実務指針21号(Department Interpretation and Practice Note (DIPN) No.21)という取扱通達にて取り上げられています。

香港特区政府税務局(IRD)より最近になって発行されたAdvance Ruling Case No.54では香港法人のグループ関連会社に対する課税方法も検討されています。このRuling Caseは過去に発表されたケースとは異なるスタンスを取るもので香港の税関係者を驚かせるものでした。これにより香港での課税対象が広がったとされます。

Advance Ruling Case No.54の要約は以下となります:




  1. 当該香港法人(貿易会社)の業務は仕入契約と販売契約の締結に関わりがあるとされた。この際の「締結」という意味は単にオファーの受託に限らず広義な意味を持つ。銀行による信用状の発行は仕入契約と販売契約に基づく。買入債務に対する交渉及び支払いは貿易会社の事業内容における重要な部分である。
  2. 当該香港法人は香港にある銀行口座の管理を行っており銀行との貸出債権交渉などを行っている。貿易取引の支払い処理は全て香港で行われいる。これによりこの会社のグループがを銀行より低コストで融資を受けている。これがグループ全体の利益向上に貢献している。
  3. もしグループ内の関連会社全てに資産やリスクが等しく独立当事者間取引として分配されていた場合は、どの部分を香港での国内所得または香港外で得られた所得とするかの判断を行うのは難しい。

Advance Ruling Case No.54の詳細は香港特区政府税務局(IRD)のホームページよりご覧いただけます。(ホームページ:

Advance Ruling Case No.54は必ずしも法的拘束力があるものではなく特例に対して適用されたにすぎませんが、今回のケースにより香港における香港外源泉所得(オフショア所得)に対して当局の方針が厳しくなったことを示すものであると考えられます。

Zetland Tax Advisors Limited(ゼットランド税理士法人)は香港やその他地域におけるオフショア法人の税務アドバイスも行っております。詳しくは までお問い合わせください。