TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 14

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4.

Misconceptions

9. I say this because at least nine misconceptions have already arisen since the Bill was published. As most of them have been brought officially to my attention and to the attention of honourable Members, I think it would be helpful if I were to deal with them here today.

10. First, it is believed by some that the amended charge is intended to tax interest received on a gross basis. This is not so. It gives rise to a tax on profits from interest, that is to say, on interest received, less related interest paid and related overhead expenses.

11. Secondly, it has been suggested that tax will be charged even where the role of the Hong Kong end of the business is negligible (for example, where it does little more than make certain book entries, commonly known as "booking" or "garaging"). In these circumstances, the interest clearly could not be said to have arisen

in Hong Kong. If the role of the overseas end of the business is minimal, (for example, again, restricted to "garaging") tax would be chargeable if, in fact, the profits from interest could be said to arise from, or through, the carrying on of its business in Hong

Kong.

12.

Thirdly, it has been suggested that the Bill

fails to reflect the recommendation of the Review

Committee in that, as drafted, it has the effect of bringing to charge a wider range of profits than was envisaged by the Review Committee and that the Bill should only seek to bring to charge profits derived

"without the substantial intervention of a branch

elsewhere". This is an expression used by the Review

Committee to describe profits which it considered should

be taxed.

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