A
Sir,
SPEECH BY THE HONOURABLE THE FINANCIAL SECRETARY
IN LEGISLATIVE COUNCIL ON WEDNESDAY, 12th APRIL 1978
Introduction
I move that the Inland Revenue (Amendment) Bill 1978
be read the second time,
2. This Bill is a reform measure with two objectives:
first, to amend the charge to profits tax on banks and other financial institutions, with a view to placing them in a broadly similar position to other businesses; and, secondly, to improve the yield from the charge, so as to maintain the rate of tax on corporate profits generally at the existing rate of 17% for as long as possible.
3.
Accordingly, the Bill seeks to deem interest accruing to a bank or a financial institution as arising in Hong Kong where such interest arises directly or indirectly through, or from, the carrying on by a bank or other financial institution of its business in Hong Kong. Consequently, profits from such interest will be chargeable to profits
tax.
Background
4.
Under the Inland Revenue Ordinance, payments of interest to those persons (for example, banks) who are required to return interest as part of their business profits are exempt from interest tax as such, but such payments are chargeable to profits tax where the source of the interest is Hong Kong
and where the interest is derived from a trade or business
carried on in Hong Kong. The Ordinance lays down no test for determining the source of interest, that is to say, where the interest arises in or is derived from.
However, case
With the emergence
law has established that, for the purpose of determining the source of interest, the test to be used is the place where
the credit is made available to the borrower.
of Hong Kong as a financial centre, and with more sophisticated techniques now becoming available, this test has proved increasingly artificial as a means of determining source.
/For example....