Question: (Adopted from www.ird.gov.hk) The taxpayer was incorporated in Hong Ko

Question

Question: (Adopted from www.ird.gov.hk)

The taxpayer was incorporated in Hong Kong in 1985. Its business is trading of polysilicon. It does not have any office or permanent establishment overseas.

The Taxpayer was dissatisfied with the profits tax assessment made by the Commissioner of Inland Revenue (CIR) for three consecutive years of assessment from 1994/95 to 1996/97. It appealed on the ground that all its profits did not arise in or derive from Hong Kong. It provided the following explanation:

The goods were produced by another entity in the Mainland and sale to customers in China and in the USA without routing through HK. The negotiation and conclusion of sales and purchase contracts were all conducted by an agent outside HK and the activities in HK were only ancillary.

The Board of Review (BOR) identified a number of activities in making the profits such as pre-contract negotiations, concluding purchase and sale contracts, making of processing agreement with the supplier in the Mainland, and so on. The BOR applied the “totality of facts” approach and decided that the trading profits sourced in HK. The taxpayer appealed to the Court of First Instance.

Required:

1. Provide the name of the above case.

2. Did the Court of First Instance uphold the Board of Review’s decision?

Explanation / Answer

1. The case is titled Consco Trading Company vs. The commissioner of inland revenue. The date of hearing was 19 November 2003 and the date of decision was 12 May 2004. The case could be found on hong kong case law.

2. Yes the court of first instance uphold the Board of review's decision and rejected the appeal of Consco trading company.

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