XN000022-1977-02-16 — Page 6

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WEDNESDAY, FEBRUARY 16, 1977

AFTER CONSIDERING THE VARIOUS FACTORS WHICH DETERMINE WHERE INTEREST ARISES FOR THE PURPOSE OF THE CHARGE TO INTEREST TAX AND PROFITS TAX AND AFTER NOTING THAT IT HAS BEEN THE TENDENCY TO TREAT THE PLACE WHERE THE CREDIT IS PROVIDED TO THE BORROWER AS THE MAIN FACTOR, THE COMMITTEE STATED THAT MANY OF THESE FACTORS WERE CAPABLE OF MANIPULATION AND THAT IF HONG KONG WERE TO SUBJECT TO TAX ALL SIGNIFICANT FLOWS OF INCOME WHICH ARE THE RESULT OF ECONOMIC ACTIVITY IN HONG KONG, IT WOULD BE BETTER SERVED IF THE CHARGING WORDS WERE TO BE EXTENDED AS RECOMMENDED BY IT. IT ALSO THOUGHT THAT APART FROM COUNTERING TAX AVOIDANCE THIS WOULD GIVE EFFECT TO CORRECT TAX PRINCIPLES. THIS RECOMMENDATION COULD MAKE CONSIDERABLE AMOUNTS OF WHAT IS KNOWN AS EURO DOLLAR OR ASIA DOLLAR

INTEREST LIABLE TO TAX FOR THE FIRST TIME.

6. THAT RESIDENT SHIP-OWNERS SHOULD BE CHARGED TAX ON ALL CHARTER

HIRE WITH THE LIMITED EXCEPTION OF CHARTER HIRE RECEIVABLE UNDER

GENERAL CHARTERS WITHOUT DEMISE.

THE COMMITTEE ADMITS THAT THE STRUCTURE OF THE SHIP-OWNING TRADE (AND TYPICAL PATTERNS ARE OUTLINED BY IT) IS SUCH THAT WHILST TAX HAVENS EXIST, EVEN THE CHARGING OF THE WHOLE OF A RESIDENT'S SHIP-OWNING PROFITS IS UNLIKELY TO PRODUCE INCREASED REVENUE AND WHILST IT WOULD HAVE LIKE TO SEE SHIP-OWNERS CONTRIBUTE MORE TO PUBLIC REVENUE, ANY MOVE TO REACH THESE LARGE PROFITS WOULD REQUIRE DETAILED AND COMPLICATED LEGISLATION AND WOULD PROBABLY BE COUNTER- PRODUCTIVE. IT NEVERTHELESS GOES ON TO MAKE THE SPECIFIC PROPOSAL MENTIONED EARLIER. IF ACCEPTED, IT WOULD NO LONGER BE POSSIBLE FOR A RESIDENT SHIP-OWNER TO AVOID HONG KONG TAX BY ATTRIBUTING CHARTER HIRE TO A PERMANENT ESTABLISHMENT ABROAD. IT ALSO NOTED IN PASSING THAT, ON THE INFORMATION AVAILABLE TO IT, NOWHERE ELSE IN THE WORLD ARE THE CHARTER HIRE EARNINGS OF A NON-RESIDENT SHIP-OWNER TAXED IN THE COUNTRY VISITED BY A SHIP, THUS THE EXISTING PROVISIONS OF THE ORDINANCE WERE IN EFFECT GIVING THE RESIDENT HONG KONG SHIP- OWNER A TAX-FREE BONUS. IT FOLLOWED THAT TO FALL INTO LINE WITH INTERNATIONAL PRACTICE, THE EXISTING CHARGE ON NON-RESIDENT SHIP-

OWNERS IN RESPECT OF CHARTER HIRE SHOULD BE ABOLISHED. A SECONDARY RECOMMENDATION IN RELATION TO NON-RESIDENT SHIP-OWNERS IS THAT THEY SHOULD BE ASSESSED ON A FIXED PERCENTAGE OF FREIGHT ETC. UPLIFTED IN HONG KONG AND THAT THIS SHOULD BE A FINAL FIGURE AND NOT A PROVISIONAL ONE. THIS WOULD SIMPLIFY THE ADMINISTRATION OF THE ORDINANCE.

7. THAT THE EXISTING SYSTEM OF AGGREGATING A WIFE'S INCOME WITH

THAT OF HER HUSBAND SHOULD CONTINUE, BUT THAT A SPECIAL ALLOWANCE

SHOULD BE INTRODUCED.

THIS WOULD,