INSIGHT: What the Li & Fung verdict will mean for Hong Kong taxpayers
09 February 2012
Joe Dalton
Victory for Li & Fung in its hearing before Hong Kong’s Court of Appeal next week will give much relief to companies which subcontract services to foreign affiliates, but if the Commissioner of Inland Revenue (CIR) triumphs it could turn Hong Kong’s tax principles upside down.
The dispute revolves around whether global supply chain management company, Li & Fung, is liable to pay profits tax to the Hong Kong Inland Revenue Department (IRD) on buying agency commission earned through services rendered outside Hong Kong on its behalf by its overseas affiliate companies.
Li & Fung, which is headquartered in Hong Kong, entered into agency agreements with overseas customers to carry out services such as: locating suppliers of goods, arranging manufacturing, placing orders on customer’s behalves and arranging shipment.
As both customer and supplier were located overseas, Li & Fung used its foreign affiliates to undertake the majority of the services in exchange for the lion’s share of the commission paid to Li & Fung by the customer.
The IRD then claimed what remained of the commission, which Li & Fung pocketed, was taxable in Hong Kong, arguing that the management...
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