TNAG-1817-FCO40-2578-Broadcasting-in-Hong-Kong-1988 — Page 10

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Restrictions on foreign ownership and on control over television stations are achieved by limiting the control which emanates from ownership of shares in the licensee company and in other companies which have influence, directly or indirectly, over the licensee company. Ownership for this purpose means real or "beneficial" ownership as opposed to ownership as a trustee for another. AGC has advised that "beneficial ownership" is a rather elusive concept because of the number of different interests that may exist in any type of property, including shares, and because of the complicated corporate structures which business people use. Nevertheless, AGC has advised that suitable provisions can be drafted to enable the beneficial interest to be followed or

or "traced" through a series of companies, as happens in certain overseas countries and in substance to pierce the veil of incorporation.

Royalty Payments by Subsidiary Companies (Recommendation (i))

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The implementation of recommendation (i) would result in TVB Ltd. having to pay a higher royalty. Depending on whether and how HK-TVB Ltd. would hive-off its subsidiaries, the royalties receivable are estimated to range between $106m (if all activities except licensing of programmes and television broadcasting activities are hived-off) and $118m (if only tour operation and retail merchandising are hived-off) for the calendar year 1986. The actual payment by TVB Ltd. for the same period was $80.5m (existing formula is 25% of net profit) and if the royalty were based on gross receipts, TVB Ltd. would have to pay $86m (Analysis at Annex G). ATV Ltd. has paid no royalty so far, but would have to pay $4.5m if the royalty were based on gross receipts. In the case of ATV Holdings Ltd., the holding company, the royalty payable on the basis of total gross receipts would also be

also be $4.5m because its subsidiaries were inactive.

이

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While the two licensees are expected to raise objections, it can be argued that they have the option of hiving off those subsidiary companies which are not essential adjuncts to the business of television broadcasting; and that those businesses that are not to be segregated and must operate as subsidiaries must be deriving benefits from the licence. Royalty on their gross receipts should therefore be paid.