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The Government's Decision
6.
The Government accepted the Review Committee's view that it is a bank's organisation in Hong Kong and the use to which that organisation is put to raise funds and on-lend them which are the source of its profits from interest. Accordingly, the Government agreed that such profits ought to be chargeable to tax here in the same way as commissions, fees and foreign exchange dealing profits are charged at the present time. With the rapid expansion of offshore business, an increasing proportion of the profits so earned would otherwise escape
tax.
There is no justification for this, inasmuch as these profits are, as a matter of fact, derived from economic activities carried on in Hong Kong.
Effect of the Bill
7.
The effect of the proposed change in the law will be that, when a bank or a financial institution
obtains funds, whether locally or abroad, through its operations in Hong Kong and places the funds abroad to earn interest, the profits from such interest will be taxed irrespective of the provision of credit test. To determine whether interest on a loan arises, directly or indirectly, through or from the carrying on of business in Hong Kong, will require an examination of the totality of the circumstances relating to where and how the deposits are garnered and the funds on-lent. In most cases, the determination will be relatively straight-forward but, in the case of some large foreign currency loans, problems may arise. I shall have more to say about this later (paragraph 14).
8.
I am sure honourable Members, Sir, will wish to
consider whether the objective embodied in the Bill is acceptable (paragraph 3) and whether the wording of the Bill is consistent with the objective.
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No comments yet.
Private notes are available after approval.