Question 1 (10 marks)

Pacific Ltd. (`the Company') carries on business in Hong Kong and its business is trading of plastic products in the year of assessment 2022/2023.

Year of Assessment 2022/2023:

Interest income

Required:

Based on the above information, briefly explain the taxability of the above interest incomes in the year of assessment 2022/2023 for (a) to (b).

Question 2 (15 marks)

Green Life Ltd (GL) is incorporated in Hong Kong and is carrying on business of trading of environmentally friendly office supplies. GL purchased goods from various suppliers, which were located in overseas, with purchase orders placed by emails. GL sold goods to customers also located in overseas. GL appointed over 80 agents to solicit customers in overseas. The agents would negotiate contracts on behalf of GL with customers in overseas, with final acceptance of contracts to be made by GL. Upon concluding terms of the sales contracts, customers would place orders to GL. GL would place orders to its suppliers. Goods would be delivered directly from its suppliers ’ factories to the overseas customers.

Required:

With reference to section 14(1) and relevant tests, discuss locality of profits of GL derived from its trading business as described above.

Question 3 (25 marks)

David is employed by a Hong Kong company as a Finance Manager and renders all of his services in Hong Kong. Other than a monthly basic salary of $100,000, David does not receive any income from his employment. David's employer runs its own provident fund registered under the Occupational Retirement Scheme Ordinance and deducts 6% from David's monthly salary as his contributions to this scheme. David's wife, May, does not have any income derived from Hong Kong. During the year ended 31 March 2023, the couple recorded the following transactions:

(1) Donations made during the year (not over the maximum limit set by the IRD):

(a) David donated $80 per month by automatic bank transfer to the Hong Kong Red Cross;

(b) David donated $500 by cash to the Tung Wah Group of Hospitals for two banquet tickets;

(c) May donated $2,000 in cash to the Community Chest of Hong Kong; and

(d) May  donated  $90  by  cash  to  the  Hong  Kong  Polytechnic  University  for scholarship fund.

(2) Bank mortgage interest of $420,000 was paid for two properties. $190,000 relates to a Hong Kong commercial property which is owned by David and is leased out for rental purposes. The balance, $230,000, relates to a Hong Kong residential property which is owned by May's parents and is used by the couple as their primary residence.

(3) David paid annual subscriptions of $3,400 to the Tennis Club of Hong Kong. As a student member of Hong Kong Institute of Certified Public Accountants, David paid a subscription fee of $2,500.

(4) David is currently studying for a part-time master degree in Finance at The Chinese

University of Hong Kong. Total tuition fees of $135,000 were paid during the year.

(5) The  couple  has  two  children,  aged  22  and  25.  Their  22-year-old  daughter  was studying full-time in the UK until January 2023 when she graduated. Their daughter started to work in Hong Kong in March 2023. Their 25-year-old son is currently studying for a part-time master degree at The University of Hong Kong.

(6) The couple has sponsored a child from Po Leung Kuk (a children care home) in Hong Kong at a maintenance fee of $4,000 per month. The couple regularly visited the child once a month.

(7) May's mother is aged 55 and lives with the couple for the whole year in Hong Kong. May's father is aged 62 and lives in an approved nursing home in Hong Kong at a cost of $7,000 per month. The cost is fully paid by David. May's father is disabled and is eligible to claim the disability allowance from the Hong Kong government, but he has not made the claim.