TNAG-1855-FCO40-2630-Legislative-Council-of-Hong-Kong-memoranda-and-minutes-of-me-1989 — Page 167

HONG KONG LEGISLATIVE COUNCIL -8 March 1989

香港立法局

—————————一九八九年三月八日

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accountants in private practice to assist in investigations and the enforcement of confiscation orders. This is estimated to cost an additional $10 million per year.

The Bill will also generate revenue. It is not possible to forecast accurately how much this will be, but experience overseas indicates that the amount is likely to be considerable, and that it will substantially exceed the recurrent costs of enforcing the legislation.

Sir, I move that the debate on this motion be now adjourned.

Question on adjournment proposed, put and agreed to.

INLAND REVENUE (AMENDMENT) (NO.2) BILL 1988

Resumption of debate on Second Reading which was moved on 2 November 1988

Question proposed.

MR. PETER POON: Sir, one of the major attractions of Hong Kong as a business centre is that under our tax laws, only income or profits arising in or derived from Hong Kong is subject to Hong Kong tax. Under the existing section 20A of the Inland Revenue Ordinance, non-residents operating in Hong Kong earning assessable income or profits here are taxed through their agents in Hong Kong. A recent court case, involving a non-resident film distributor, decided that if the parties are dealing on a principal to principal basis, tax due by the non-resident is not recoverable by the Commissioner of Inland Revenue through the party who pays such non-resident. The purpose of the Inland Revenue (Amendment) (No. 2) Bill 1988 is mainly to plug such loophole.

Since the introduction of the original Bill, concerns have been expressed that the scope of clause 2 is too wide and may cause hardship and uncertainty under certain circumstances. An ad hoc group formed to study the Bill had two fruitful meetings with the Administration and has carefully considered the various representations made. As a result, a new section 20B has been proposed which, in our view, would alleviate the concerns expressed but would nevertheless enable the Commissioner of Inland Revenue to collect tax due by non-residents, such as sportsmen, entertainers and recipients of royalties and licence fees, who obtain assessable income and profits in Hong Kong by dealing with a Hong Kong resident on a principal to principal basis. There has been