TNAG-1619-FCO40-2228-Executive-Council-of-Hong-Kong-memoranda-and-minutes-of-meet-1987 — Page 4

XCRI (87) 17

The Proposal to amend the Law

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In order to provide certainty and to eliminate disputes it is proposed to amend the law

proposed to amend the law to make the place where the services are rendered the sole test of source, and therefore assessability of employment income. Thus, under the proposal, a person who in any year renders sevices both in and out of Hong Kong will be chargeable to Salaries Tax only in respect of the income from services rendered in Hong Kong. The income derived from services rendered outside Hong Kong will not be chargeable to tax. In other words, the law will provide for the automatic granting of time apportionment on the basis of where the services are rendered. The highly disputable question of place of employment will no longer be relevant to the issue.

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In this regard, Members may wish to note that, in 1955, the United Kingdom Royal Commission on the Taxation of Profits and Income examined the question of employment as a source of overseas income. It found that there was no statutory rule for deciding the question and that the Courts were obliged 'to decide it according to balance of what might be considered the relevant considerations'. These included the nationality, domicile or residence of the employer; the country in which the contract of employment is made and the country im which it is enforceable; the nature of the services to be rendered and the place where they are to be rendered; the place where remuneration for services is paid and the

the funds from which payment is made. The Royal Commission went on: to say that 'in Our view the place in which the work is done is much the most important single test af the locality of an employment though it

it is the one to which the courts have hitherto given least weight, if indeed they have not treated it as having no weight at all

All ather elements are capable of fairly simple manipulation for tax purposes but the place of work is not.

to

15 In broad

In broad terms, the effect of the proposal is alter the test of source from place of employment to place where services are rendered. However, a provision has been included to overcome the administrative nuisance which would otherwise occur of handling. a very large number of cases where services are rendered outside Hong Kong on only a small number of

of days. Under this provision, services rendered outside Hong Kong on less than 60 days will be deemed to be services rendered in Hong Kong and income arising from those services will therefore be chargeable to tax.

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It should be noted that the proposal for automatic apportionment does not apply to Hong Kong Government civil servants, seafarers and aircrew. These various categories of employees are already treated differently under existing law

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