XN000022-1986-02-26 — Page 27

WEDNESDAY, FEBRUARY 26, 1986

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REPEAL OF OFFSHORE DEPOSITS LAW PROPOSED

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THE FINANCIAL SECRETARY, SIR JOHN BREMRIDGE, PROPOSED TODAY THAT THE AMENDMENTS MADE IN 1984 TO THE INLAND REVENUE ORDINANCE WHICH RENDERED SOME INTEREST EARNED ON OFFSHORE DEPOSITS CHARGEABLE TO PROFITS TAX, BE REPEALED FROM APRIL 1 THIS YEAR.

SIR JOHN EXPLAINED THAT THE PROPOSAL TO REVERSE THE LEGISLATION THAT HAD ONLY BEEN IN EFFECT FOR A SHORT TIME DID NOT MEAN THAT HE CONSIDERED IT TO HAVE BEEN PHILOSOPHICALLY MI SCONCE I VED IN THE FIRST PLACE.

+ IT HAS, HOWEVER, PROVED TO BE FAR MORE CONTENTIOUS AND DIFFICULT TO INTERPRET THAN AT FIRST EXPECTED, + HE SAID.

SIR JOHN SAID HE BELIEVED IN PRINCIPLE THAT INTEREST DERIVED THROUGH OR FROM THE CARRYING ON OF A BUSINESS IN HONG KONG SHOULD BE LIABLE TO PROFITS TAX IRRESPECTIVE OF WHETHER THAT INTEREST AROSE FROM ONSHORE OR OFFSHORE DEPOSITS.

'THE PROVISION OF CREDIT TEST IN THIS TECHNOLOGICAL AGE IS BOTH ARTIFICIAL AND INAPPROPRIATE IN DETERMINING THE TRUE TERRITORIAL SOURCE OF INTEREST INCOME DERIVED BY BUSINESS, HE ADDED.

+WHILE PHILOSOPHICALLY THERE IS A CONSIDERABLE DIFFERENCE BETWEEN THE MERE HOLDING OF INVESTMENT FUNDS OFFSHORE AND THE MAKING OF DEPOSITS OFFSHORE AS PART OF A BUSINESS CARRIED ON IN HONG KONG, IT HAS HOWEVER PROVED IMPOSSIBLE TO DIFFERENTIATE BETWEEN THE TWO IN THE FORM OF THE CRISP LEGAL DRAFTING ESSENTIAL TO REVENUE LAW,+ SIR JOHN SAID.

+ UNCERTAINTY IN THE LAW IS ALWAYS UNSATISFACTORY, HE SAID, +IN THIS CASE THE UNCERTAINTY HAS TENDED TO STRENGTHEN THE CASE OF THOSE WHO SEEK TO PRETEND THAT WE HAVE DEPARTED IN SOME WAY FROM THE IMPORTANT TERRITORIAL SOURCE CONCEPT OF TAXABLE PROFITS.+

+ ACCORDINGLY. AND ON THE ADVICE OF THE HELPFUL UMELCO AD HOC INLAND REVENUE REVIEW PANEL SET UP TO EXAMINE THIS MATTER AMONGST OTHERS. I AGREED THAT THE PRACTICE NOTES ISSUED BY THE COMMISSIONER OF INLAND REVENUE ON THE ASSESSIBILITY OF INTEREST SHOULD BE SUITABLY AMENDED TO MAKE THE CIRCUMSTANCES UNDER WHICH OFFSHORE INTEREST IS LIABLE TO TAX MUCH CLEARER, SIR JOHN SAID.

HE HAD ALSO PROMISED THE PANEL THAT CONSIDERATION SHOULD BE GIVEN TO REPEALING THE AMENDMENTS ALTOGETHER WHEN THE FISCAL AND BUDGETARY POSITION PERMITTED, HE SAID.

WITH THE