With a view of minimizing the profits tax payable by PolyStar Ltd in Hong Kong,
ID: 369253 • Letter: W
Question
With a view of minimizing the profits tax payable by PolyStar Ltd in Hong Kong, Annie Wong, the General Manager, proposed to set up a trademark holding company in Cayman Islands (TM Ltd) and dispose of certain trademarks currently owned and used by the company to TM Ltd. This will be followed by the licensing back of the right of use of the trademarks to PolyStar Ltd at an arm-length's price. She explained that this would increase the allowable deduction for PolyStar Ltd in Hong Kong, while at the same time the income received by TM Ltd would not be chargeable to profits tax as it has no permanent establishment in Hong Kong. Currently, PolyStar Ltd also licensed the use of these trademarks to several customers in Hong Kong in return for a royalty fee. After the transfer of the trademarks, TM Ltd may enter into agreement with those companies for using the trademarks in Hong Kong.Explanation / Answer
c- What Annie is proposing is called as Base Erosion and Profit Shifting(BEPS) to a country which is regarded as tax heaven.In this case the profit of Polyster Ltd will be shifted to Cayman Island which is a tax heaven because of nearly minimal tax rate by creating a subsidiary company called TM Ltd.This will definitely minimize the profits tax liability in Hong Kong because of the transfer pricing.This is not regarded as ethical business practice and recently OECD( Organisation for Economic Co-operation and Development) have make it a prior thing that members countries should not practice BEPS.It is to be keep in mind of Annie that recently Hong Kong Govt. Inland Revenue Department (IRD) have publish a consultation paper on BEPS so that such transaction can be either curtailed or tax heavily if get noticed.I dont think it will be a best proposal for Annie.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.