0250 B415F Profits tax- interest

0250 B415F Profits tax- interest - B415F Profits tax ....

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B415F Profits tax . Interest Deductions 11
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Contents 1. Interest Deductions a) S16 (2A): Secured loan test b) S16 (2B): Interest flow-back test c) S16 (2C): Interest flow-back test 2. Apportionment of Expenses a) Apportionment of interest b) overhead for investment portfolio 22
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1. Interest expenses - from 25 June 2004 n Deductible: if a. incurred for the purpose of producing assessable profits - S16 (1)(a) AND b. any one of the six criteria in S16(2)(a) – (f) n Note: S16(2A), (2B) and (2C) refer to 2 additional tests relating to “secured loan test” and “interest flow-back test” 33
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Interest Deduction – S16(2) Borrowing Applicable to Section By special classes of business Borrowing by financial institutions 16(2)(a) Borrowing by public utility companies 16(2)(b) Other Lender of money is subject to tax in HK 16(2)(c) From financial institutionsBorrowing from local or overseas financial institutions 16(2)(d) For special purposes Borrowing for the purchase of machinery or plant or trading stock 16(2)(e) By special methods Borrowing by issue of corporate debentures or instruments 16(2)(f) 44
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Deduction of loan interest n In recent years, there has been an increase in aggressive tax avoidance schemes, including the use of tax planning tools such as trust, and the artificial issue of debentures on overseas stock exchanges. n S16(2)(c), S16(2)(d), 16(2)(e) and 16(2)(f) have been amended in 2004 to combat these tax avoidance schemes between associated companies which seek to create allowable interest deduction where the corresponding interest income is not taxable. n DIPN13A on Deductibility of Interest Expense 55
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S16(2A), S16(2B), S16(2C) Lender of money is subject to tax in HK 16(2)(c) Borrowing from local or overseas financial institutions 16(2)(d) S16(2A) + S16(2B) Borrowing for the purchase of machinery or plant or trading stock 16(2)(e) Borrowing by issue of corporate debentures or instruments 16(2)(f) S16(2C) 66
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1a. S16(2A) secured loan test n A deposit of $5 million (generating tax-free interest of $180,000) was used to secure a loan of $3 million used for financing onshore business activities and another loan of $2 million used for financing offshore businesses. Interest incurred on the onshore business loan was $120,000 and that on the offshore business loan was $80,000. 77
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S16(2A) secured loan test The deposit was used to secure two loans. The amount of interest expenses allowable for deduction will be reduced by $108,000, which is calculated as follows: $3 million (onshore loan) $180,000 x ------------------------------------------------------ $5 million (onshore loan + offshore loan) = $108,000 88
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S16(2A) secured loan test HKCo Non HK Co Bank A A Co Associate Associat e Income $180,000 Deposit $5m Loan $3m + 2 m Expense $120,000 + $80,000 HK Overseas 99
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The secured-loan test — s 16(2A) Deduction of interest may be reduced by an amount calculated in the most reasonable and appropriate basis if the payment of any sum payable in respect of the
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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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0250 B415F Profits tax- interest - B415F Profits tax ....

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