Advance Ruling Case No. 39

1. The provisions of the Ordinance

This ruling applies in respect of section 18E of the Inland Revenue Ordinance ("IRO").

2. Background

(a)

The Applicants comprising five companies are subsidiaries of a company registered in Country A.

(b)

There are fourteen subsidiaries in the group, six in Hong Kong, six in Country B, one in City C and one in Country D.

(c)

All companies in Hong Kong commenced their business after 1 April 1974.

(d)

The Applicants make up their accounts to 31 March whereas the six companies in Country B, the one in City C and one of the Hong Kong companies make up their accounts to 31 December.

3. The arrangement

(a)

The Applicants will change the accounting date from 31 March to 31 December in the year of assessment 2009/10. Their accounts will be closed with a 9-month period from 1 April 2009 to 31 December 2009 for the year of assessment 2009/10.

(b)

The Applicants have put forward the following reasons for the proposed change of accounting date:

(i)

to alleviate the time pressure for consolidated reporting, and

(ii)

to facilitate the analysis of financial data of the group.

4. The ruling

(a)

The Commissioner will adopt the 9-month period from 1 April 2009 to 31 December 2009 as the basis period of the Applicants for the year of assessment 2009/10.

(b)

The Commissioner will adopt the 12-month period from 1 April 2008 to 31 March 2009 as the basis period of the Applicants for the year of assessment 2008/09.

5. The period for which the ruling applies

This ruling applies to the Applicants for the years of assessment 2008/09 and 2009/10.

6. The material assumptions in respect of a future event or any other matter made by the Commissioner

There are no assumptions made by the Commissioner.

7 . Date of ruling issued

5 June 2009.

8. Commentary

Under section 18E of the IRO, where the assessable profits of a person from any trade carried on in Hong Kong have been computed by reference to an account made up to a certain day in any year of assessment and the person fails to make up an account to the corresponding day in the following year of assessment, the assessable profits from that source for the year of change and the year preceding the change shall be computed/recomputed on such basis as the Commissioner thinks fit. For businesses which commence after 1 April 1974, the aim is to ensure that profits not less than the total profits made over the life of the business are assessed. Hence, in the present case for the year of change, a 9-month basis period is adopted. For the year preceding the change, the Commissioner considers it not necessary to recompute the profits.

(This commentary is not a legally binding statement and it does not form part of the Ruling.)