rocket
Introducing the Orbitax International Tax Platform, a revolutionary suite of integrated tax solutions including research, compliance, calculations, entity management and charting. Find out more.
News Share

The Tax Hub

Daily Tax Newsletter

Hong Kong

Responsive image

HKIRD incorporates court decisions on principles relating to apportionment of expenses into its practices

The Hong Kong Inland Revenue Department (HKIRD) issued, in July 2008, a revised edition of the Departmental Interpretation and Practice Notes (DIPN) No. 3 (Revised) on Profits Tax – Apportionment of Expenses. The first edition of the DIPN was issued in July 1974 and revised in December 1989. In the 1989 revision of DIPN 3, the HKIRD had adopted the principles based on Rules 2A, 2B and 2C of the Inland Revenue Rules (IRR), i.e. the method for apportionment of expenses in general, and of interest and management expenses in relation to the holding of share investments. Under Rules 2A, 2B and 2C of IRR, apportionment should be made on a basis that is most appropriate in the circumstances of the case. Apportionment can be based on turnover, gross profit, income or assets.

In the latest revision, although there is no change in practice, relevant court decisions have been incorporated to illustrate the principles relating to the apportionment of expenses. The court decisions incorporated into the DIPN are as follows:

-  

Ronpibon Tin (NL) v. FCT 4 AITR236

Two kinds of expenditure are recognized for apportionment, i.e. (i) several parts of expenditures that are distinctly devoted to making profits and other parts are devoted to other ends, and (ii) a single outlay that serves both the profit-making purpose and some other purpose indifferently.

-  

Anthony Patrick Fahy trading as A.P. Fahy & Co. v. CIR 3 HKTC 695

Outgoings or expenses that have dual purposes, i.e. partly for domestic or private purpose, and partly for business purpose. The part for domestic or private purpose is a non-deductible expense.

-  

CIR v. Hang Seng Bank Ltd. 3 HKTC 351

With regard to profits partly derived within Hong Kong and partly outside Hong Kong, the gross offshore profits should be reduced to reflect their fair share of the general expenses of the business.

-  

SO Kai-tong, Stanley trading as Stanley So & Co. v. CIR HKTC 38

Ledgers are secondary and not primary documents to support the basis that an expenditure was truly incurred in the production of chargeable profits when raising an objection or appeal.

Additionally, attention is drawn to the apportionment rules contained in the Inland Revenue Ordinance for specific types of expenditures, namely:

-  

Sec. 16B(2): Research and development payments or expenditure are apportioned where the relevant payments or expenditures are made or incurred outside Hong Kong and trade is carried on partly in and partly out of Hong Kong;

-  

Sec. 16E(2): Expenditure on patent rights are apportioned where the rights purchased are partly for use in and outside Hong Kong. The deduction allowable will be determined after having regard to the extent of the use in Hong Kong; and

-  

Sec. 16E(2): Apportionment of expenditure on prescribed fixed assets is required where the asset is partly used in the production of chargeable profits.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

FX Rates

Global FX Rates including Tax year Average FX Rates and Spot Rates for all Reporting Currencies.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More