Advance Ruling Case No. 58

1. The provisions of the Ordinance

This ruling applies in respect of sections 14, 19C(4), 51(1), 61A and 61B of the Inland Revenue Ordinance (“IRO”).

2. Background

(a)

Company A and Company B are companies incorporated in Hong Kong. They belong to the same international group. Company A is principally engaged in investment holding. It is the group’s regional holding company which wholly owns Company B as well as other group companies in the Asia Pacific region. Company B is principally engaged in the provision of services.

(b)

In order to streamline the overall group structure, enhance management and operational efficiency, and reduce cost, the group has implemented an on-going programme for reducing number of legal entities within the group. The programme was first launched in Europe in 2006 and has recently been extended to worldwide.

(c)

To keep up with the progress on a global level, the management has planned to amalgamate Company B vertically into Company A (“the Amalgamation”). The management anticipates that the Amalgamation will not only help to achieve the group cost-saving purpose, but also increase the substance of Company A as a regional holding and operating entity.

(d)

Company B sustains tax losses which remains unutilized prior to the Amalgamation. Company A agrees that after the Amalgamation, it will utilize such tax losses only to set off against profits derived by it from the same trade or business succeeded from Company B.

3. The arrangement

(a)

Company B will be amalgamated into Company A in 2016.

(b)

The Amalgamation is governed by the amalgamation provisions in Division 3 under Part 13 of the Companies Ordinance (Cap. 622). The legal effect of the Amalgamation on and after the effective date of the Amalgamation includes:

(i)

Company B ceases to exist as an entity separate from Company A; and

(ii)

Company A succeeds to all property, rights and privileges, and all liabilities and obligations of Company B.

4. The ruling

(a)

Upon the Amalgamation, Company A will succeed to all assets, property or liabilities of Company B. Such succession will not constitute a sale, transfer or other disposal of or a change in the nature of those asset, property or liabilities for the purpose of the IRO. Any provision or accruals of Company B will be carried over to and vested with Company A without any changes in the related tax base and treatments.

(b)

For the purpose of section 14 of the IRO, no profits or loss will arise or be deemed to arise in Company A and Company B as a result of the Amalgamation.

(c)

For the purpose of section 19C(4) of the IRO, any unutilized tax losses sustained by Company B prior to the Amalgamation will be available for set off against Company A’s assessable profits for the year of assessment 2016/17 and the subsequent years of assessment, provided that such assessable profits are derived by Company A from the same trade or business carried on by Company B up to the day immediately before the Amalgamation.

(d)

For the purpose of section 51(1) of the IRO, Company A, as the surviving amalgamated company, will furnish:

(i)

Profits Tax return for Company B to report Company B’s assessable profits or adjusted loss for the period from 1 January 2016 to the day immediately before the effective date of the Amalgamation; and

(ii)

its own Profits Tax return for the year of assessment 2016/17 to report its assessable profits, including the assessable profits or adjusted loss of the trade or business succeeded from Company B for the period from the effective date of the Amalgamation to 31 December 2016.

(e)

Sections 61A and 61B of the IRO will not be applied to the Amalgamation.

5. The period for which the ruling applies

This ruling applies for the year of assessment 2016/17 and all subsequent years of assessment.

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

(a)

Company B will continue to carry on its trade or business up to the day immediately before the Amalgamation.

(b)

The trade or business carried on by Company B immediately before the Amalgamation will be succeeded and carried on by Company A upon and after the Amalgamation.

7. Date of ruling issued

27 June 2016