WEDNESDAY, FEBRUARY 29, 1984
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+ I WOULD ADD THAT, QUITE APART FROM THE ADDITIONAL REVENUE YIELDS WHICH WILL ACCRUE FROM THIS PROPOSAL, I SEE IT AS A MINOR BUT USEFUL SUPPORT MEASURE FOR THE HONG KONG DOLLAR, SINCE THERE WILL NO LONGER BE A TAX INCENTIVE FOR BUSINESSES TO HOLD DEPOSITS OFFSHORE,+ SIR JOHN SAID.
HE POINTED OUT THAT IT WAS COMMONPLACE FOR BUSINESS PROPRIETORS WITH SURPLUS FUNDS TO PUT THEM TO WORK BY PLACING THEM WITH FINANCIAL INSTITUTIONS AND OTHERS TO EARN INTERST,
+FOR MANY YEARS NOW THE INLAND REVENUE DEPARTMENT, IN DETERMINING WHETHER OR NOT SUCH INTEREST INCOME IS EXIGIBLE TO PROFITS TAX, HAS APPLIED THE SAME TEST OF LIABILITY AS IS APPLIED IN DETERMINING THE LIABILITY OF NON-BUSINESS LENDERS TO INTEREST TAX.
+ IN REVENUE JARGON, THAT TEST IS KNOWN AS THE 'PROVISION OF CREDIT' TEST: IN LAYMAN'S TERMS, LIABILITY TO HONG KONG TAX HAS ARISEN ONLY WHERE THE MONEY LOANED IS MADE AVAILABLE TO THE BORROWER IN HONG KONG,+ SIR JOHN SAID.
HE ADDED THAT WHILE THIS APPROACH MIGHT BE ALL VERY WELL IN DETERMINING THE LIABILITY OF PRIVATE DEPOSITORS TO INTEREST TAX, IT BEGGED THE QUESTION WHERE THE MONIES WERE LOANED AS PART AND PARCEL OF THE OPERATIONS OF A BUSINESS CARRIED ON IN HONG KONG.
HE RECALLED THAT IN 1976, THE THIRD INLAND REVENUE ORDINANCE REVIEW COMMITTEE EXPRESSED DOUBTS ABOUT THE VALIDITY OF THIS APPROACH.
+THE PRESENT COMMISSIONER OF INLAND REVENUE - AND HIS PREDECESSOR - HAVE LONG HELD THE VIEW THAT THE PROVISION OF CREDIT TEST IS BOTH ARTIFICIAL AND INAPPROPRIATE IN DETERMINING THE TRUE TERRITORIAL SOURCE OF INTEREST INCOME ACCRUING TO BUSINESSES.
+
+I SHARE THEIR VIEW, PARTICULARLY AS IN THE TECHNOLOGICAL AGE IN WHICH WE LIVE, THE PLACING OF A DEPOSIT IN A BANK ACCOUNT IN LONDON OR NEW YORK IS ONLY A QUICK TELEPHONE CALL OR A TELEX MESSAGE AWAY.
+ALL IN ALL, I BELIEVE THAT A MORE REALISTIC APPROACH IS TO LOOK AT THE LOCALITY OF THE BUSINESS CARRIED ON, RATHER THAN THE PHYSICAL LOCATION OF THE MONEYS LOANED, IN ORDER TO DETERMINE THE SOURCE OF THE RESULTANT INTEREST INCOME, SIR JOHN SAID.
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