Advance Ruling Case No. 8

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 on 25 March 2002.

(b)

Its business will be the trading of processed fruits and food related products outside Hong Kong. It will purchase from suppliers in Asia, excluding Hong Kong and resell to customers mainly in Europe and other countries, excluding Hong Kong.

(c)

The Company maintains offices in Taiwan and Indonesia. The two directors, who will be managing the daily operations of the Company, will be residing in Indonesia and Taiwan respectively. Two Marketing & Procurement Officers are presently located in the Indonesian office. The Company aims to recruit additional Marketing & Procurement Officers to be located in the to-be-set-up Thailand office.

(d)

As all the negotiation processes of sales and purchase transactions will be carried out in different countries, a centralized administrative function is required to administer and co-ordinate work performed by the employees and directors in these various locations. Hong Kong has been selected as the "centralized administrative office" in order to contribute to the smooth running of the administrative functions.

(e)

The Company therefore plans to set up this office in Hong Kong. The staff in the Hong Kong office are to undertake the following activities:

(i)

issuing or accepting invoices (not orders) to or from an ex-Hong Kong customer or supplier on the basis of contracts of sale or purchase already effected by an ex-Hong Kong associate;

(ii)

arranging letters of credit;

(iii)

operating a bank account, making and receiving payments; and

(iv)

maintaining accounting records.

3. The arrangement

(a)

The Company intends to enter into purchase contracts with an Indonesian supplier, S Ltd., and sales contracts with a US customer, C Ltd.

(b)

S Ltd. was located by the Taiwanese director during a business trip to Indonesia, whilst C Ltd. was located by the Indonesian director at a German food exhibition. Communication with both supplier and customer has been followed up outside Hong Kong via e-mail.

(c)

Upon conclusion of both the purchase and sales agreements with S Ltd. and C Ltd., arrangements will be made outside Hong Kong for direct shipment from S Ltd. to C Ltd. The goods will not pass through Hong Kong and no stock of merchandise would be maintained in Hong Kong.

(d)

The Hong Kong office will perform the functions of issuing or accepting invoices, arranging letters of credit, operating a bank account, making and receiving payments and maintaining accounting records.

4. The ruling

The profits to be derived by the Company with respect to the trading transactions with supplier S Ltd. and customer C Ltd. will not be taxable under section 14 of the IRO. The ruling only applies to trading transactions to be entered into by the Company with the subject supplier and customer identified herein.

5. The period for which the ruling applies

This ruling will apply in the years of assessment 2002/2003 and 2003/2004.

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 trading transactions would be implemented in the way stated in the ruling application and the ruling.

7 . Date of ruling issued

20 August 2002.