TNAG-1619-FCO40-2228-Executive-Council-of-Hong-Kong-memoranda-and-minutes-of-meet-1987 — Page 288

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For information

(7.4.87)

XCRI (87) 17 Copy No

NOTE FOR EXECUTIVE COUNCIL

Inland Revenue Ordinance

(Chapter 112)

INLAND REVENUE (AMENDMENT) BILL 1987

ALAR

23(180

Aub 01119

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TIME APPORTIONMENT BASIS OF TAXATION FOR SALARIES TAX

Introduction

On 31 March 1987, having considered XCR (87) 58, the Council advised and the Governor ordered, inter alia,

alia, that the Financial Secretary should submit an information note at the meeting of the Council on 7 April 1987 explaining the scope of his time apportionment proposals.

225

The purpose of this paper is to set out the existing provisions of the law, the difficulties being encountered and the implications of the proposed amending legislation.

The Existing Law

3 Section 8(1) of the Inland Revenue Ordinance charges tax on the income arising in, or derived from, Hong Kong from any employment. In other words, employment income which has a source in Hong Kong is liable to Salaries Tax. However, the law presently contains no rules to be applied in deciding whether particular employment income does have a source in Hong Kong. In this regard, courts both in Hong Kong and other jurisdictions have consistently maintained the view that "source" is a practical matter of fact. In deciding this issue of source some assistance can be obtained from decisions of the Hong Kong Inland Revenue Board of Review which, over the years, has considered many disputes concerning the source of employment income. However, the Board has been unable to lay down with any precision a test that can be applied in all cases.

What the decisions of the Board have so far established is that, under the existing law, each case must be considered on its merits by looking at all the relevant facts in deciding the place of employment and, thereby, the place where the employment income arises. If the place of employment is Hong Kong then the source of the employment income is Hong Kong; if the place of employment is not Hong Kong then the source of employment income is also not Hong Kong.

G.F. 324

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