Enclosure No. 2
HONG KONG
LEGAL REPORT
THE INLAND REVENUE (AMENDMENT) ORDINANCE 1986
(No. 7 of 1986)
This Ordinance amends the Inland Revenue Ordinance (Chapter 112) to provide for certain tax reliefs and to introduce provisions to limit or counteract schemes for the avoidance of tax.
2.
The main provisions are as follows
-
Section 3 exempts from salaries tax, salaries or other remuneration payable to spouses of sole proprietors or partners, which are not deductible in assessing liability to profits tax. The object is to avoid double taxation.
in
Section 4 extends the present deduction allowed, when ascertaining profits chargeable to profits tax, respect of interest payable on debentures listed on a stock exchange in Hong Kong prior to 1 April 1984 to such debentures whatever the date of listing. A similar allowance is granted in respect of other commercial paper which is marketable in Hong Kong or other approved financial centres. The new provision covers the case where debentures or other paper is issued by an associated corporation such as an off-shore subsidiary.
Section 5 makes it clear that no deduction is allowed in respect of a provision under a retirement scheme except a provision for an annual premium or payment to an approved retirement scheme, in an amount which, taken with the premium or payment, does not exceed 15 per cent of the emoluments of the employee for the relevant period. This closes a loop-hole in the law created by a recent Privy Council decision.
Section 7 introduces a new provision to limit exploitation of the provisions of the principal Ordinance, which confer tax benefits on a person who has incurred capital expenditure on the provision of machinery or plant, and which may occur in the case of certain sale and lease back arrangements or other leasing arrangements limiting the rights of the lessor in respect of the debt created under the leasing arrangements.
Page 30Page 31