Q%20and%20A%20ch%2002-all - 14 edition Question 2-1 Mr...

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14 edition Question 2-1 Mr Bates, an American, was recruited in Hong Kong by CD (Hong Kong) Limited (CD), a company incorporated in Hong Kong, whose directors' meetings were held in Hong Kong. CD is a member of an international group of companies whose main line of business is the production of audio equipment for the world market. The ultimate parent company of CD is Music Sensation SA (Music), a company incorporated in the United States. CD is a regional headquarters for the group in Asia. It has no production activities. Its sole role is to supervise the operations of other group companies in Hong Kong, Singapore and Malaysia so as to ensure that the policies made by Music are carried out. All the salaries' expenses incurred by CD are reimbursed by Music with an additional 10 per cent to cover other office expenses. Mr Bates’ designation was internal auditor. His main duty was to audit the books of the group companies in Asia and report his findings to his immediate superior, Mr Ross, the officer in charge of the audit department in CD. Half of Mr Bates' salary was paid into his bank account in New York with the balance paid into his bank account in Hong Kong. Required: (a) What are the factors which the CIR has considered to be relevant in determining the locality of an employment for salaries tax purpose? (4 marks) (b) Applying these factors to Mr Bates' case, state, with detailed reasons, whether his employment is located in Hong Kong. (3 marks) Answer for Question 1 The source of employment income is determined by the place where the employment is located. If it is located in Hong Kong (ie Hong Kong employment), then any income arising from that employment is chargeable to salaries tax and it does not matter that some of the duties of the employment are performed outside Hong Kong. As a consequence of the Goepfert decision, the CIR has now accepted that the locality of an employment is outside Hong Kong if the following factors are present: (i) the contract of employment was negotiated, entered into, and is enforce able outside Hong Kong (ii) the employer is resident outside Hong Kong (iii) the employee's remuneration is paid outside Hong Kong. In a case where all three factors are not satisfied, factor (iii) will be outweighed by the other two factors. (b) Applying the above factors to Mr Bates' case, it is clear that the locality of his employment is in Hong Kong: his contract of employment was negotiated in Hong Kong, his employer is a company resident in Hong Kong by virtue of its central management and control, and part of his salary is paid in Hong Kong. Although by the nature of his job, Mr Bates is required to perform part of his duties overseas, this does not render his employment foreign. Question 2-2
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This note was uploaded on 09/29/2011 for the course ACCT 3161 taught by Professor Kwong during the Spring '11 term at CUHK.

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Q%20and%20A%20ch%2002-all - 14 edition Question 2-1 Mr...

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