Mr. Dave Ho, who is a Hong Kong resident. He lives with his family in Hong Kong.

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Question:

Mr. Dave Ho, who is a Hong Kong resident. He lives with his family in Hong Kong. In May 2020, he signed an employment contract with a Hong Kong Company (HKCo.), as a Deputy Director of Production of its business. HKCo. is managed and controlled in Hong Kong. Monthly salary of Dave is $80,000 and he has been paid by direct credit into a bank account in Hong Kong. His payroll costs are borne by HKCo. all along since Dave has been recruited. HKCo. has a wholly owned subsidiary in Foshan, the PRC, namely, the Foshan Enterprise Ltd. (FoshanCo.).

In June 2020, Dave was assigned to a factory in Foshan as the Factory Manager. The factory is owned by FoshanCo. Usually, he would be in Foshan 4 to 5 days during a week in order to lead the production carried out there. For the rest of a week, he returns to Hong Kong from Foshan on Saturday afternoon. He would spend Sunday with his family and would leave for Foshan on the following Monday. Based on the arrival/departure record kept by HKCo., during the year of assessment 2020/21, Dave was altogether in Hong Kong for a total of 90 days (equivalent to 3 months salaries during the year).

In terms of the terms and conditions specified in the employment contract, Dave needs to be regularly and permanently stationed in the Foshan factory. He reports to Mr. Fan of HKCo. during Fan’s regular visits to the factory there in PRC. Habitually Dave spends his Sundays in Hong Kong. On Monday mornings, he would leave Hong Kong for the PRC. He usually left from the office of HKCo. in Hong Kong in the forenoon so that he would arrive Foshan sometime after 4 o’clock in the afternoon. There were occasions when he left late to deal with his personal and family affairs.

HKCo. only maintains an office in Hong Kong with no production facilities, machine or equipment. Work meetings are held in the office of HKCo. In particular, those business meetings with regard to the production activities carried out at the Foshan would require Dave’s presence while he is in Hong Kong on Monday mornings. Also, from time to time when work left over in HKCo. in Hong Kong would take such work with Dave back to Foshan to have it completed.

Required: The total word count of all answers should be 500-900 words.

a) What are the factors which the Inland Revenue Department would consider to be relevant in determining the locality of an employment for salaries tax purpose? (4 marks)

b) Applying these factors to Dave’s case, explain whether his employment is in Hong Kong. (6 marks)

c) Comment the Hong Kong salaries tax position of Dave for the year of assessment 2020/21. (10 marks)

d) Discuss potential double taxation issues concerning Dave’s personal salaries tax in the above case. For illustration purpose, you may use 15% flat rate as tax rate for Hong Kong; and 45% flat rate as tax rate for PRC in your answer. All amounts stated above are in HK dollars. Ignore exchange rate, tax rebate and provisional salaries tax. Also, you are not required to make specific reference to the actual DTA concluded in place.