Offshore Claim Part 2 (2/2)

Welcome to Our Trading Profits Offshore Claim Series Part 2. In this 2-part Series, we will talk about the 9 additional challenges on Hong Kong Offshore Claim on Trading Profits. The first four challenges were covered in the Part 1 Video already.

Number 5...No overseas tax is paid... Double non-taxation is not something the tax authorities like. In this case, the IRD will seriously challenge if the activities of the Hong Kong company are really being carried out outside Hong Kong, and thus disallow your offshore claim.

Number 6... Trade financing Activities in Hong Kong.....if you arrange trade financing with Hong Kong financial institutions or maintain Hong Kong staff to handle trade financing matters, the IRD may consider such activities as profit-generating activities and disallow your offshore claim.

Number 7... Shipping Activities in Hong Kong....if your goods pass through Hong Kong or certain shipping activities are handled by you (or your business partners) in Hong Kong, the IRD may consider such activities as profit-generating activities and disallow your offshore claim.

Number 8... Agreements governed by Hong Kong Law...As part of the Contract Effected Test, if your Master Sales Agreement or Master Purchase Agreement are governed by Hong Kong Law, the IRD may consider that the contracts are effected in Hong Kong, and thus may disallow your offshore claim.

Number 9...Most importantly, Lack of documentary evidence is the major reason of failure...In Hong Kong, the burden of proof for tax dispute lies on the taxpayer. However, the documentary evidence required for offshore claim is more than that for book-keeping purpose. Many of you might not have the trade-related business records on hand to defend against IRD’s challenge, especially when its challenge usually comes after several years and the responsible staff has already left. You should consult with the tax advisor on the documents required first, and then retain those documents for at least 7 years.

After all, there are many implicit factors to consider when it comes to offshore claim. If you would like to know more about offshore claims, or seek tax advice from our tax experts, please do not hesitate to contact us by email or phone. Thank you.