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Advance Ruling Case No. 11
1. The provisions of the Ordinance
| This ruling applies in respect of section 14 of the Inland Revenue Ordinance ("IRO"). |
2. Background
| (a) | X Ltd. was incorporated in Hong Kong on 24 August 2001. Its business is the trading of ink products. |
| (b) | The goods are manufactured by a fellow subsidiary, S Ltd., in South Africa. |
| (c) | About 80% of X Ltd.'s sales have been made to related companies, one of which is A Ltd, a fellow subsidiary in USA. |
| (d) | X Ltd. has entered into a Master Purchase Agreement ("MPA") with S Ltd., and Master Sales Agreements ("MSA") with related customers (such as A Ltd.). These agreements are made outside Hong Kong. |
| (e) | X Ltd.'s holding company in Israel, H Ltd., coordinates the trading transactions and production of products. It decides all transfer pricing among its subsidiaries ( such as X Ltd. and A Ltd. ) and with S Ltd. It also prepares the production plan. |
3. The arrangement
| (a) | Based on the prices and production quantity already fixed by H Ltd. in Israel, a Delivery Notice ("DN") was prepared for an individual trading transaction by H Ltd. in Israel for issue to S Ltd. and copied to X Ltd. and A Ltd. |
| (b) | X Ltd. received the DN in Hong Kong and prepared a DN to S Ltd. |
| (c) | Invoices were prepared by S Ltd. in South Africa and sent to and received by X Ltd. in Hong Kong. |
| (d) | Invoices were prepared by X Ltd. In Hong Kong and sent to A Ltd. in U.S.A. via S Ltd. |
| (e) | Accounts were settled by remittances to and from X Ltd.'s bank account maintained in Hong Kong with remittance instructions made from Israel. |
4. The ruling
| The profits derived by X Ltd are profits arising in or derived from Hong Kong and assessable to Hong Kong tax under section 14 of the IRO. |
5. The period for which the ruling applies
| The ruling applies to the year of assessment 2001/02 and onwards. |
6. Date of ruling issued
| 3 June 2003. |