e_dipn13a_Interest Expense_s16(2ABC)

Where a loan from a financial institution was secured

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ubject to profits tax. Where a loan from a financial institution was secured or guaranteed against a deposit with that or another financial institution and the interest received on the deposit was not chargeable to tax in Hong Kong, condition (d) would not be satisfied. The following examples illustrate the above situations – Example 1 Mr A carried on business as a plastics manufacturer. In order to obtain additional working capital, he borrowed from a local bank. This borrowing was secured by a mortgage over the factory premises owned by Mr A. Because the loan was not secured by a deposit, the borrowing clearly satisfied condition (d). Example 2 Mr B carried on an export/import business in Hong Kong. In order to obtain additional working capital, he borrowed from a local bank. The borrowing was secured by a fixed deposit with that same bank registered in the name of Mr B’s wife, who carried on no business in Hong Kong. 3 The interest received by Mrs B was not chargeable to tax in Hong Kong and as the relationship between Mr and Mrs B (as husband and wife) was one within the class of “associates” prescribed in section 16(3), the borrowing by Mr B did not satisfy condition (d). Example 3 C Limited carried on business in Hong Kong as an electronics manufacturer. For the purpose of acquiring new factory premises, C Limited borrowed from a local bank. This borrowing was partly secured by a fixed deposit with the same bank registered in the name of D Limited, a wholly owned subsidiary of C Limited. D Ltd carried on business in Hong Kong. Although the borrowing was secured against a deposit owned by an “associated corporation”, condition (d) was satisfied because the interest on the deposit was chargeable to profits tax in the hands of D Limited. Example 4 E Limited carried on business in Hong Kong as consultants. Mr E, who was the major shareholder and managing director of E Limited, received dividends and a salary from the company. For the purposes of expanding its business,...
View Full Document

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.

Ask a homework question - tutors are online