Advance Ruling Case No. 40

1. The provisions of the Ordinance

This ruling applies in respect of section 14 of the Inland Revenue Ordinance ("IRO").

2. Background

(a)

The Company was incorporated in Hong Kong. It has been engaged in the trading of coke and chemical products ("the Products").

(b)

The Company is a member of the R Group. Mr. Y, a resident of Country A, is the major shareholder, chairman and chief executive officer of the R Group. He is also the sole director of the Company, and closely manages its businesses and operations.

(c)

The Company has a related company in Country A, namely, H Limited. It is a company incorporated in Country A, and is a supplier of the Products.

(d)

The business activities of the Company are all managed by Mr. Y in the offices of the R Group or H Limited in Country A. Practically, other employees of the R Group also assist Mr. Y in managing the business of the Company on Mr. Y's request from time to time.

3. The arrangement

(a)

The Company purchases the Products solely from H Limited and resells the Products to customers outside Hong Kong and Country A. None of its customers or suppliers is located in Hong Kong.

(b)

The Company has no office (other than a registered office maintained for meeting the statutory requirements under the Companies Ordinance of Hong Kong), director, employee or agent in Hong Kong. All business activities of the Company giving rise to its trading profits (including the finance and accounting functions, shipment arrangements, and negotiation, conclusion and execution of the purchase and sales contracts) are all carried out by Mr. Y and/or staff of the R Group or H Limited in Country A, in the manner described in paragraph 2(d) above.

(c)

The Company maintains bank accounts in Hong Kong for collection of trade debts from customers and making of payments to supplier. Mr. Y operates the bank accounts from Country A. Documents relating to the banking transactions were prepared in Country A by staff of the R Group or H Limited and after approving by Mr. Y, will be faxed to the relevant banks in Hong Kong for dealing with the banking transactions.

(d)

No transit of goods in Hong Kong is required as the Products are shipped directly from Country A to overseas ports where the customers are located.

4. The ruling

The Company will not be chargeable to Profits Tax under section 14 of the IRO in respect of profits it derived from transactions described in the Arrangement.

5. The period for which the ruling applies

This ruling will apply for the year of assessment 2008/09 and subsequent years of assessment.

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

The Commissioner has assumed that the subject transactions will be implemented in the way stated in the ruling application and the ruling.

7 . Date of ruling issued

15 April 2009.

8. Commentary

Under section 14 of the IRO, every person who carries on a trade, business or profession in Hong Kong is chargeable to profits tax on the profits arising in or derived from Hong Kong. In the present case, the Company would not effect any contracts for purchase and sale of the Products in Hong Kong. The trading profits to be derived by the Company are offshore sourced. Therefore, section 14 does not apply.

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