INLAND REVENUE RULES

INLAND REVENUE RULES

INLAND REVENUE RULES

ARRANGEMENT OF RULES

Rule ..................................Page

1. Citation.................................... ... ... ... ... ... ... ... A 2

Rates ofDepreciation

2..............Rates of depreciation ...... ... ... ... ... ... ... ... ... ... ... ... A 2

Method of ascertainment, for the purposes of section 16 of the Ordinance,
of the extent to which outgoings and expenses are incurred
in the production ofprofits in respect of which a person is
chargeable to tax under Part IV of the Ordinance

2A.............................General apportionment of outgoings and expenses ... ... ... ... ... A 4
2B.............................Interest on borrowed money used in purchase of shares ... ... ... ... A 4

2C.............Investment portfolios ...... ... ... ... ... ... ... ... ... ... ... ... A 4

2D..................Rights of objection and appeal ... ... ... ... ... ... ... ... ... ... A 5

Method of ascertainment and determination of the profits of the
Hong Kong branch of a bank whose head office
is elsewhere than in Hong Kong

3...................Banks; Hong Kong branch offices ... ... ... ... ... ... ... ... ... A 5

4..........[Revoked] ...................... .... ... ... ... ... ... ... ... ... A 6

Method of ascertainment and determination of the profits of the
Hong Kong branch of a person whose head office
is elsewhere than in Hong Kong

5.....................Profit of Hong Kong branch offices ... ... ... ... ... ... ... ... ... A 6

Method of apportioning an annuity between
capital and interest

A
89 ftftikoit!'................. ... ... ... ... ... ... ...





INLAND REVENUE RULES
(Cap. 112, section 85)
[22 August 1947.1

1. These rules may be cited as the Inland Revenue Rules.

Rates of Depreciation

2. (1) For the purpose of the Ordinance, the expression
'machinery or plant' shall include or be deemed to include the items
specified in the second column of the First Part of the Table annexed
to this rule but not the items specified in the second column of the
Second Part of that Table which shall be deemed to be included in
the expression 'any implement, utensil and article' for the purposes
of the Ordinance.

(2) The rates of depreciation specified in the third column of
the First Part of the Table annexed to this rule are hereby prescribed
for the purpose of ascertaining the annual allowance to be made
under sections 37(2), 37A(2) and 3911(3) of the Ordinance.

(3) Wharves shall not be or be deemed to be included in the
expression 'plant or machinery' but where a balancing allowance
or a balancing charge falls to be made to or on any person under
section 35 of the Ordinance in respect of any wharf, the allowances,
if any, granted in respect of such wharf under section 37 or 37A
of the Ordinance for any year of assessment prior to the year of
assessment commencing on 1 April 1965, shall be taken into account
in calculating such balancing allowance or charge.

TABLE
FIRST PART
Rate of
Item Depreciation
1. Air-conditioning plant excluding room air-conditioning units 10%
2. Bank safe deposit boxes, doors and grills .............................. 10%
3. Broadcasting transmitters .....10%
4. Cables (electric) .............10%
5. Lamp standards (street)-gas or electric 10%
6. Lifts and escalators (electric) 10%
7. Mains (gas or water) ..........10%
8. Oil.........................tanks ......................................................................................
10%





Rate of
Item Depreciation
9. Shipping---
Ships, junks and sampans .........10%
Lighters .........................10%
Tugs .............................10%
10. Sprinklers ...................10%
11. Domestic appliances ..........20%
12. Furniture (excluding soft furnishings) ....................... 20%
13. Room air-conditioning units .. 20%
14. Shipping-
Launches and ferry vessels ....... 20%
Hydrofoils ..................................... 20%
15. Taxi meters ..................20%
16. Type and blocks (if not dealt with on renewals basis) 20%
17. Aircraft (including engines) ........................ 30%
18. Bar syphon apparatus ................................ 30%
19. Bicycles ................................... 30%
20. Bleaching and finishing machinery and plant 30%
21. Concrete pipe moulds ......... 30%
22. Electric cookers and kettles . 30%
23. Electronic data processing equipment 30%
24. Electronics manufacturing machinery and plant 30%
25. Motor vehicles ...............30%
26. Plastic manufacturing machinery and plant including moulds ... 30%
27. Shipping-
Outboard motors ..................30%
28. Silk manufacturing machinery and plant 30%
29. Sulphuric and nitric acid plant 30%
30. Tank lorries .................30%
31. Textile and clothing manufacturing machinery and plant 30%
32. Tractors-bull dozers and graders 30%
33. Weaving, spinning, knitting and sewing machinery 30%
34. Machinery or plant, not specified in items 1 to 33, and used for
the purposes of a transport, tunnel, dock, water, gas or electricity
undertaking or a public telephone or public telegraphic service 10%
35. Any other machinery or plant, not specified in items 1 to 34 20%

SECOND PART
Item
1. Belting.
2. Crockery and cutlery.
3. Kitchen utensils.
4. Linen.
5. Loose tools.
6. Soft furnishings (including curtains and carpets).
7. Surgical and dental instruments.
8. Tubes for X-ray and infra-red machines.





Method of ascertainment, for the purposes of section 16 of the
Ordinance, of the extent to which outgoings and expenses
are incurred in the production of profits in respect
of which a person is chargeable to tax under
Part IV of the Ordinance

2A. (1) NO deduction shall be allowed for any outgoing or
expense incurred in the production of profits not arising in or
derived from Hong Kong, but where any outgoing or expense was
incurred partly in the production of profits arising in or derived from
within Hong Kong and partly in the production of profits arising
or derived from outside Hong Kong, then, for the purpose of ascer-
taining the extent to which such outgoing or expense is deductible
under section 16 of the Ordinance, an apportionment thereof shall
be made on such basis as is most appropriate to the activities of
the trade, profession or business concerned.

(2) Where, apart from or in addition to the circumstances
referred to in paragraph (1) as giving rise to an apportionment, it is
necessary to make an apportionment of any outgoing or expense by
reason of it having been incurred not wholly and exclusively in the
production of profits in respect of which a person is chargeable to
tax under Part IV of the Ordinance, such apportionment or further
apportionment, as the case may be, shall, subject to the provisions of
rules 211 and 2C, be made on such basis as is most reasonable and
appropriate in the circumstances of the case.

2B. (1) Where interest is paid or payable on any sum of
money borrowed and used partly for the purpose of acquiring shares
in a corporation which is chargeable to tax under Part IV of the
Ordinance and partly for some other purpose or purposes, such
interest as is attributable to the part used for the purpose of
acquiring such shares shall, subject to paragraph (2), not be an
allowable deduction, and where any apportionment is necessary
to ascertain the amount of interest so attributable, it shall be
made on such basis as is most reasonable and appropriate in the
circumstances of the case.

(2) Where a person is chargeable to tax under Part IV of the
Ordinance in respect of profits from share dealing, no apportion-
ment or disallowance of interest shall be made under paragraph (1)
in respect of any money borrowed and used for the purpose of
acquiring the shares constituting the subject-matter of such share
dealing.

2C. (1) Where the investment portfolio of any person who is
chargeable to tax under Part IV of the Ordinance is, in the opinion
of the assessor, sufficiently substantial to warrant making an adjust-
ment in respect of the expenses of supervision and management of
the portfolio, a due proportion of the management, clerical and
general expenses attributable to the supervision and management of
the investment portfolio shall be disallowed, and, unless a more
practical and suitable basis is available in the circumstances of the





case, the estimation of such due proportion of the management,
clerical and general expenses shall be made on the basis of such
percentage of the total cost of the investments and securities
which comprise the investment portfolio as is most reasonable and
appropriate in the circumstances of the case, not exceeding-

(a)one-eighth per cent in any case where the investments are
held not for purpose of, or not solely for the purpose of,
producing profits by way of dividends, but for, or also
for, the purpose of producing profits, by resale or share
dealing;

(b) one-half per cent, in any other case.

(2) Where the investment portfolio of any person who is
chargeable to tax under Part IV of the Ordinance is not, in the
opinion of the assessor, sufficiently substantial to warrant making an
adjustment in respect of the supervision and management of the
portfolio, no disallowance or apportionment shall be made under
paragraph (1).

2D. Any decision under rule 2A, 2B or 2C shall be subject to
the same rights of objection and appeal as are conferred by Part XI
of the Ordinance.

Method of ascertainment and determination of the profits of
the Hong Kong branch of a bank whose head office
is elsewhere than in Hong Kong

3. (1) In this rule-

'bank' means any bank whose head office is elsewhere than in
Hong Kong;

'Hong Kong branch' means the business carried on in Hong Kong
by any such bank.

(2) Where any accounts prepared by a bank for its own
purposes disclose, in the opinion of the Assessor, the true profits of
the Hong Kong branch, the assessable profits shall be computed on
the basis of such accounts.

(3) Where no accounts are prepared which in the opinion of
the Assessor disclose the true profits of the Hong Kong branch,
the following provisions shall apply in the determination of such
profits-

(a)the same proportion of the total profits of the bank as the
assets of the Hong Kong branch bear to the total assets of
the bank shall be treated as profits made from transactions
in Hong Kong and shall be assessed accordingly;

(b)for the purposes of determining the total profits of the
bank, similar adjustments for tax purposes will be made in





the accounts of the bank as would have been necessary
had the whole of those profits been liable to tax under this
Ordinance;

(c)where the Assessor is of the opinion that it would be
impracticable or inequitable to adopt the provisions of
sub-paragraphs (a) and (b) of this paragraph, he may
estimate the amount of the profits of the Hong Kong
branch, and assess such profits accordingly:

Provided that any decision of an Assessor under this rule shall
be subject to objection and appeal in accordance with the provisions
of Part XI of the Ordinance.

4. [Revoked, 49 of 1956, s. 691

Method of ascertainment and determination of the profits of
the Hong Kong branch of a person whose head office
is elsewhere than in Hong Kong

5. (1) In this rule-

'person' includes a company, partnership, or body of persons;

'permanent establishment' means a branch, management or other
place of business, but does not include an agency unless the
agent has, and habitually exercises, a general authority to
negotiate and conclude contracts on behalf of his principal or
has a stock of merchandise from which he regularly fills orders
on his behalf.

(2) The Hong Kong profits of a person having a permanent
establishment in Hong Kong, but whose head office is situated
elsewhere than in Hong Kong, will be assessed as follows-

(a)where the person keeps accounts for his Hong Kong
establishment in such a way that his true profits arising in
or derived from Hong Kong can be readily ascertained
from those accounts, his assessment to Profits Tax will
be computed by reference to the profits disclosed in those
accounts;

(b)where the person's accounts do not disclose the true profits
arising in or derived from Hong Kong, his tax liability will
be computed by reference to his total profits wherever
made. The same proportion of his total profits as his
turnover in Hong Kong bears to his total turnover shall
be treated as profits arising in or derived from Hong Kong
and shall be taxed accordingly;

(c)for the purposes of determining total profits of a person,
similar adjustments for tax purposes will be made in his
accounts as would have been necessary had the whole of
those profits been liable to tax under the Ordinance;





(d)where the Assessor is of the opinion that it would be
impracticable or inequitable to adopt the provisions of
sub-paragraphs (b) and (c) of this paragraph he may
compute the amount of the profits arising in or derived
from Hong Kong on a fair percentage of the turnover of
the person in Hong Kong:

Provided that the decision of an Assessor under this rule shall
be subject to objection and appeal in accordance with the provisions
of Part XI of the Ordinance.

Method of apportioning n annuity between
capital and witerest

6. (1) For the purposes of in assessment to interest tax
under Part V of the Ordinance, an annuity payable in respect of
valuable consideration given shall fifrst be apportioned as between
capital and interest in accordance wi h this rule; and the proportion
which the capital element in any annCity payment bears to the total
amount of that payment shall be wnstant for all payments on
account of the annuity.

(2) In the case of an annuity where neither the term of the
annuity nor the amount of any an~uity payment depends on any
contingency other than the duration of a human life or lives, the
capital element shall be the same proportion of the annuity as the
proportion which the total amoun or value of the consideration
bears to the actuarial value of the ailnuity payments as determined
in accordance with paragraph (3); ~nd the amount of the excess of
the annuity over the capital element so determined shall be deemed
to be interest chargeable to interest tax.

(3) The actuarial value of the annuity payments shall-

(a)be their value as at the date when the first of such payments
begins to accrue; and

(b)be determined in accordance with the select tables in the
volume of tables published in 1953 at the University Press,
Cambridge, for the Instit~te of Actuaries and the Faculty
of Actuaries entitled The! a(55) Tables for Annuitants in
the United Kingdom,

without discounting any payment for the time to elapse between the
date when the first payment begins:~to accrue and the date on which
payment is made.

(4) In the case of an annuity ~~ayable for a term of years certain
y
the capital element shall be obtaine dividing the total amount or
value of the consideration for the nnuity by the number of years in
the term; and the excess of the annuity over the amount so obtained
shall be deemed to be interest chargeable to interest tax.





(5) In any case not covered by paragraph (2) or (4), the capital
element of any annuity payment stall be such proportion of such
payment as the Commissioner, having regard to paragraph (2) and
to the contingencies affecting the al inuity, considers on reasonable
grounds to be just.

(6) This rule shall be constmed subject to the following
provisions-

(a)no apportionment to carital shall be made in respect
of any consideration given by a person other than the
annuitant, or his or her spouse; and

(b)any premium or portion :)f a premium which has been
allowed as a deduction under section 42B of the
Ordinance, shall be exchided from the amount of the
consideration.
G.N. 658/47. G.N.A. 18/48. 36 of 1955. 49 of 1956. G.N.A. 26/60. L.N. 101/65. L.N. 129/65. L.N. 209/67. L.N. 140/71. L.N. 81/74. L.N. 121/79. L.N. 365/80. L.N. 149/81. 7 of 1986. Citation. Rates of depreciation. L.N. 101/65. L.N. 365/80. L.N. 149/81. L.N. 81/74. General apportionment of outgoings and expenses. L.N. 129/65. 7 of 1986, s. 12. Interest on borrowed money used in purchase of shares. L.N. 129/65. Investment portfolios. L.N. 129/65. Rights of objection and appeal. L.N. 129/65. Banks; Hong Kong branch offices. 7 of 1986, s. 12. L.N. 101/65. Profit of Hong Kong branch offices. 7 of 1986, s. 12. L.N. 101/65. L.N. 140/71. Apportionment of annuity. L.N. 140/71.

G.N. 658/47. G.N.A. 18/48. 36 of 1955. 49 of 1956. G.N.A. 26/60. L.N. 101/65. L.N. 129/65. L.N. 209/67. L.N. 140/71. L.N. 81/74. L.N. 121/79. L.N. 365/80. L.N. 149/81. 7 of 1986. Citation. Rates of depreciation. L.N. 101/65. L.N. 365/80. L.N. 149/81. L.N. 81/74. General apportionment of outgoings and expenses. L.N. 129/65. 7 of 1986, s. 12. Interest on borrowed money used in purchase of shares. L.N. 129/65. Investment portfolios. L.N. 129/65. Rights of objection and appeal. L.N. 129/65. Banks; Hong Kong branch offices. 7 of 1986, s. 12. L.N. 101/65. Profit of Hong Kong branch offices. 7 of 1986, s. 12. L.N. 101/65. L.N. 140/71. Apportionment of annuity. L.N. 140/71.

https://oelawhk.lib.hku.hk/items/show/2496

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