e_dipn13a_Interest Expense_s16(2ABC)

E_dipn13a_Interest Expense_s16(2ABC)

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Unformatted text preview: E Limited borrowed from a local bank. This borrowing was secured by a fixed deposit in the name of Mr E with a Cayman Islands financial institution. Being both a shareholder and a director of E Limited, Mr E was related to E Limited as an associate within the terms of section 16(3). As Hong Kong tax was not chargeable on interest received by Mr E from the Cayman Islands deposit, the borrowing by E Limited did not satisfy condition (d). 6. In practice, the most appropriate way of establishing that condition (d) was satisfied was for the taxpayer to submit a statement with his return setting out details of both the borrowing and the security or guarantee provided for the loan. Where the security or guarantee took the form of a deposit 4 owned by a person other than the borrower, the relationship between that person and the borrower and whether that person carried on a business in Hong Kong should be clearly explained. Further, if the borrowing was from a financial institution which did not carry on business in Hong Kong, then sufficient details of that institution should be provided so as to enable the Commissioner to determine whether it was an overseas financial institution which could be recognized for the purposes of section 16(2), (3) and (4). To qualify as an overseas financial institution, the institution in question must be adequately supervised by a supervisory authority. 7. Condition (e) would be satisfied by the borrower establishing that – the money had been borrowed wholly and exclusively to finance capital expenditure on machinery and plant, or for the purchase of trading stock, for the purpose of producing chargeable profits; and the lender was not an associate of the borrower in terms of section 16(3). 8. Finally, condition (f) related to corporate borrowings by way of debentures or other “marketable instruments”. As regards the interest payable on debentures, the condition would be satisfied where such debentures were listed on a stock exchange in Hong Kong or any other s...
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This note was uploaded on 03/11/2010 for the course BBA B415 taught by Professor Mrli during the Spring '10 term at Academy of Art University.

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