何谓‘来料加工’和‘进料加工’.doc

Case No. D15/14 Profits tax – additional assessment – specified capital expenditure – lease – depreciation allowance – amount of loss carried forward – bad debts – correction of error in assessment – source of profits – sections 2, 14, 16, 16G, 18F, 19C, 33A, 39B, 39E, 60(1), 64, 68(4), 70 and 70A of the Inland Revenue Ordinance (‘IRO’) [Decision in Chinese] Panel: Cissy K S Lam (chairman), Chui Pak Ming Norman and Liu Man Kin. Dates of hearing: 16-20 December 2013 and 3 March 2014. Date of decision: 29 August 2014. The Appellant was a Hong Kong company. According to the documents provided by it, the Appellant engaged in transactions in the sale and purchase of moulds in Hong Kong. It set up factories in the Mainland, and provided the required equipment to the mainland factories as a foreign investor, so as to supply the products as specified by its customers. The Appellant claimed that it had participated in activities relating to the technical design of products, the purchase of raw materials and the manufacturing. The Appellant was of the view that in the relevant years of assessment, it should be allowed deduction of the capital expenditure in the prescribed fixed assets, depreciation allowance in respect of the machinery or plant, allowance for commercial building, and bad debts. The Appellant also objected to the decision of the Inland Revenue Department to cancel the deduction of the amount of loss carried forward in the relevant year of assessment. Besides, the Appellant claimed that its profits in the relevant years of assessment were arising in or derived from an offshore source, and demanded that its tax returns be corrected under section 70A. Held: The relevant machinery and plant were fixed assets in which the concerned mainland factories held rights as a lessee under a lease. Thus they were ‘excluded fixed assets’, and did not belong to ‘prescribed fixed assets’. The capital expenditure incurred on the provision of them therefore could no