Spotlight On: Hong Kong – Profits of Interposed Company Not Taxable
Insight from our Asia-Pacific team
In Newfair Holdings Ltd. v. Commissioner of Inland Revenue, the Court of First Instance of the Hong Kong High Court steadfastly clung to its strict definition of territorial taxation and ruled that the profits of an interposed Hong Kong company did not have a Hong Kong source and are thus not subject to profits tax in Hong Kong.
The Hong Kong Inland Revenue Department has in recent years tried to chip away at this strict definition with claims that the use of a Hong Kong intermediary was tantamount to a Hong Kong source. It looks like the IRD has some ways to go as it appears that the recent international tax discourse and developments based on the (improper) use of an intermediary purely to obtain tax treaty benefits hold no sway over the Hong Kong High Court.