LI & FUNG (TRADING) LTD v. COMMISSIONER OF INLAND REVENUE

LI & FUNG (TRADING) LTD v. COMMISSIONER OF INLAND REVENUE

The Court upheld the Board of Review: the relevant profit-producing transactions were sourcing and agency activities performed by overseas local affiliates, and the 6% commission was earned offshore; administrative, supervisory or headquarters activities in Hong Kong are antecedent and legally irrelevant to the geographical source of those profits, so no apportionment to Hong Kong arises on the facts found.

Citation
LI & FUNG (TRADING) LTD v. COMMISSIONER OF INLAND REVENUE
Parties
Appellant and Respondent: Li & Fung (Trading) Limited; Respondent and Appellant: Commissioner of Inland Revenue
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
18 April 2011
Case Number
HCIA1/2010
Procedural Posture
Inland Revenue Appeal (case Stated) / Judgment on Appeal to Court of First Instance
Outcome
Appeal dismissed in respect of the sourcing issue; Board's conclusion that disputed profits were offshore upheld
Legal Topics
Source of Profits, Profits Tax, Offshore Sourcing, Agency, Apportionment, Anti Avoidance (s.61 and S.61 a Iro)
Source Language
EN
Tax Revenue Administrative Law Source of Profits Profits Tax Offshore Sourcing Agency Apportionment +1 more

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Parties

Li & Fung (Trading) Limited

Appellant and Respondent

Commissioner of Inland Revenue

Respondent and Appellant

Procedural Posture

Inland Revenue Appeal (case Stated) / Judgment on Appeal to Court of First Instance

Legal Issues

  1. 1 Whether profits relating to goods sourced from suppliers outside Hong Kong were offshore and not chargeable to Hong Kong profits tax
  2. 2 Whether apportionment of commission between Hong Kong and offshore sources is required (issue deferred)

Ratio Decidendi

The Court upheld the Board of Review: the relevant profit-producing transactions were sourcing and agency activities performed by overseas local affiliates, and the 6% commission was earned offshore; administrative, supervisory or headquarters activities in Hong Kong are antecedent and legally irrelevant to the geographical source of those profits, so no apportionment to Hong Kong arises on the facts found.

Court Disposition

Appeal dismissed in respect of the sourcing issue; Board's conclusion that disputed profits were offshore upheld

Orders

  • Order Nisi that the Commissioner pay Li & Fung (Trading) Limited's costs of the appeal in relation to the source of the disputed profits; costs to be taxed if not agreed, with certificate for two counsel
  • Proceedings on the anti-avoidance/apportionment issue deferred pending remittal of certain matters to the Board