CONFIDENTIAL
6774 .1
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EASILY EXPLAINED TO THE CHINESE IF THEY CHOSE TO RAISE DETAILED
QUESTIONS IN THE JLG. THE ADDITIONAL PROVISIONS THAT YOU HAVE FORMULATED REGARDING MANAGEMENT AND CONTROL, WHICH ARE INTENDED TO AVOID THE FOC STIGMA, SEEM TO US AT FIRST SIGHT TO BE FAR FROM WATERTIGHT. AS THEY STAND, IT MIGHT BE HARD TO REFUTE A CHINESE CONTENTION THAT WE WERE PROPOSING TO SET UP AN FOC IN HONG KONG.
DTP HAVE SUMMARISED THE MAIN POINTS OF DIFFICULTY THEY
3.
SEE IN YOUR LATEST PROPOSALS AS FOLLOWS:
A)
B)
C)
4.
IN VIEW OF YOUR COMMENT IN PARA 1 OF SECOND TUR THAT A
PRINCIPAL PLACE OF BUSINESS REQUIREMENT DOES NOT NECESSARILY GIVE RISE TO A TAX LIABILITY, DTP ARE PUZZLED AS TO WHY ITS RETENTION WOULD PROMOTE A REDUCTION IN THE
NUMBER OF SHIPS REGISTERED IN HONG KONG AND BY
IMPLICATION WOULD ALSO DETER REPATRIATION TO THE HONG
KONG REGISTER OF LOCALLY BENEFICIALLY OWNED SHIPS FROM
LIBERIA, ETC. WHATEVER THE REASONS MAY BE, DTP WONDER WHY SHIP MANAGERS AND ASSOCIATED SERVICE PROFESSIONS
WOULD AS A CONSEQUENCE LOSE OUT. WE HAD ALWAYS ASSUMED
THAT THEIR BUSINESS WAS A FUNCTION MORE OF HONG KONG'S
SUCCESS AS A COMMERCIAL AND MERCANTILE CENTRE THAN OF THE
NUMBER OF SHIPS ON THE HONG KONG REGISTER.
YOU REPORT IN PARA 2 (IV) OF SECOND TUR THAT THE TERM
'MANAGEMENT AND CONTROL OF SHIPPING, ALTHOUGH YET TO BE PRECISELY DEFINED, WILL ACCORDING TO HKSOA HAVE NO GREATER SIGNIFICANCE FOR TAX PURPOSES THAN THE PRINCIPAL
PLACE OF BUSINESS REQUIREMENT. WE FIND THIS A LITTLE SURPRISING, BUT ASSUME THAT YOUR TAX AUTHORITIES HAVE
ENDORSED HKSOA'S VIEW?
WHY, IF IN THE EVENT MANAGEMENT AND CONTROL PROVE TO HAVE ABOUT THE SAME SIGNIFICANCE FOR TAX PURPOSES AS THE
PRINCIPAL PLACE OF BUSINESS, WOULD THE FORMER BE ACCEPTABLE TO SHIP MANAGERS AND ASSOCIATED SERVICE
PROFESSIONS BUT NOT THE LATTER?
GRATEFUL FOR YOUR VIEWS ON THESE POINTS. WE APOLOGISE
FOR EATING INTO YOUR TIMETABLE FOR SUBMITTING YOUR PROPOSALS TO
EXCO, BUT BELIEVE IT WOULD BE BETTER FOR ALL OF US TO BE
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CONFIDENTIAL