e_dipn13a_Interest Expense_s16(2ABC)

All borrowings by a financial institution satisfied

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Unformatted text preview: c utilities. All borrowings by a financial institution satisfied condition (a), while any borrowings by public utilities at a rate of interest not exceeding a specified rate satisfied condition (b). 4. Condition (c) applied to borrowings from persons other than financial institutions or overseas financial institutions. It would be satisfied by the borrower establishing that any interest payable on the loan was chargeable to profits tax under the Inland Revenue Ordinance (IRO). Where the money borrowed had been made available to the borrower in Hong Kong, it would generally be clear that any interest paid on the loan would be chargeable to profits tax in the hands of the lender who was carrying on a trade or business in Hong Kong, as the interest income was sourced in Hong Kong. In such cases, to demonstrate that condition (c) was satisfied, it would be sufficient to disclose the identity of the lender, the place of his business, and the place where the money borrowed was made available to the borrower, so as to establish that the interest paid was chargeable to profits tax. On the other hand, where the loan was made available to the borrower outside of Hong Kong as an offshore loan, there would be a prima facie presumption that any interest payable was not chargeable to profits tax (for being incurred outside Hong Kong)) and that condition (c) was not satisfied. This presumption could, of course, be rebutted by the borrower demonstrating that notwithstanding the loan being offshore, the lender nevertheless carried on business in Hong Kong and was chargeable to profits tax on the interest received. 5. Condition (d) referred to moneys borrowed from financial institutions or overseas financial institutions. Its practical application was best explained by distinguishing such borrowings into those that satisfied the condition and those that did not. A loan from a financial institution (whether local or overseas) would satisfy condition (d) if – 2 The loan was not secured or guaranteed by any deposit made with that or another financial institution; or The loan was secured or guaranteed against a deposit with that or another financial institution, by – − the borrower or on his behalf, or, − a person who was closely associated with the borrower (an associate as defined in section 16(3)), and the interest received on the deposit was s...
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