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The purpose of the section is apparently to prevent a
director from gaining an advantage of Salaries Tax free remuneration.
However, the section does not have this effect. If a company wishes
a director to receive remuneration "tax free" this is only another
way of saying that it wishes its director to receive a particular
sum net after tax. There is nothing in any way improper in this.
Indeed it is the normal practice with many United States and
Japanese multinationals when sending staff to work abroad for
overseas subsidiaries. If a director of a Hong Kong company is
intended to receive a net salary after tax of, say, $830,000 per
annum the company, if properly advised, would agree to pay him
$1,000,000 gross. With tax at 17% he will have a net or
"tax free" salary of $830,000. If the shareholders think that
this is excessive they can raise the matter at the appropriate AGM
and refuse to pass the accounts. Section 157G is irrelevant and
protects no-one.
Section 159G is not only unrealistic but at variance with
the Inland Revenue Ordinance. This can be illustrated by two further
examples. As the first example illustrates a "tax free" salary of
$830,000 can be achieved by paying the director $1,000,000. If,
however, the service contract provided that the company would pay
the director $1,000,000 free of tax section 157G(2) provides that
this sum would have to be treated as a gross sum leading the director
to pay $170,000 in tax. If the company then paid the tax for the
director, as often is the case, section 9(1) of the Inland Revenue
Ordinance would apply and the director's income for Salaries Tax
purposes would become $1,170,000 and not $1,000,000 with the result
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