Advance Ruling Case No. 69

1. The provisions of the Ordinance

The ruling applies in respect of section 15K of the Inland Revenue Ordinance (“IRO”).

2. Background

(a)

The Applicant is a private limited company incorporated in Hong Kong. Its principal business activities are sales of hospitality packages for sporting events and investment holding. The Applicant holds 20% equity interests in Company-F, a company incorporated in Jurisdiction F.

(b)

The Applicant is an MNE entity as defined in section 15H(1) of the IRO. It is not a pure equity-holding entity as defined in section 15K(3).

(c)

The Applicant will derive offshore dividend incomes (“the Dividends”) from Company-F. The Dividends will be specified foreign-sourced income as defined in section 15H(1) of the IRO.

3. The arrangement

(a)

The Applicant carries out or arranges to carry out its specified economic activities, as defined in section 15K(3) of the IRO, in Hong Kong. The specified economic activities are making necessary strategic decisions in respect of assets it acquires, holds or disposes of and managing and bearing principal risks in respect of the relevant assets.

(b)

The Applicant has several directors and employees in Hong Kong to manage and support its business operations. Besides, it outsources its legal and business support activities to a non-associated service provider (“the Service Provider”) in Hong Kong.

(c)

Apart from its principal business activities, the Applicant has advanced two interest-free loans to its related parties in Hong Kong and bears principal risks of the loans. As the loan transactions have already occurred and have been made within the same multinational enterprise group, minimal activities are required by the Applicant to manage the loans. The relevant activities in relation to overseeing the loans are carried out by the Applicant’s director in Hong Kong.

(d)

The Applicant has planned to:

(i)

have a predetermined number range of employees with necessary qualifications to carry out the specified economic activities in Hong Kong each year;

(ii)

incur a predetermined amount range of annual operating expenditures in Hong Kong for the specified economic activities; and

(iii)

undertake adequate monitoring of the specified economic activities carried out in Hong Kong by the Service Provider.

4. The ruling

The Applicant will satisfy the economic substance requirement under section 15K of the IRO.

5. The period for which the ruling applies

The relevant ruling will apply for the years of assessment 2023/24 to 2027/28.

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

There is no assumption made by the Commissioner.

7. Date of ruling issued

1 March 2023