ACCT 4410 Taxation

Take home assignment # 3 (Topic: Locality of Employment)

Instructions to Students:

1. Students should complete the assignment on his or her own, i.e., on

individual basis.
2. Each student should submit his or her own answers in bullet point form. Do
not write long paragraphs.
3. No cover page is necessary
4. Font type/Size: Times New Roman/11
5. 1.5 lines spacing (for case); no spacing (for computation)
6. Save your file as .pdf for submission purpose
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion; format and presentation of computation, report organization and
references (where appropriate)
8. The assignment accounts for 5% of total course assessment
9. Deadline for submission: 23rd March 2022 – Submit the completed
assignment to the online course platform – canvas; by 5:00 p.m.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L2; L1 and L3 (per weekly class sequence)
Subject: Locality of Employment
Date: 15th March 2022

1
Take home exercise #3: ACCT 4410 Taxation – 2022 Spring Semester

Solutions:
The relevant tests to determine the source of an employment are set out in Goepfert’s case,
they are:

– i. The place where the contract of employment was negotiated and concluded;
– ii. The residence of the employer; and
– iii. The place where the remuneration is paid.

a) About Mr. Hong

1. Applying these tests to this case, we find that both i); ii) and iii) are in Hong Kong.
It appears that the contract is a local, Hong Kong one.
– Employed by a Hong Kong company, implied employment contract
enforceable using HK laws
– OCL managed and controlled in HK
– Payroll costs borne by OCL, a HK managed and controlled entity
2. It did not seem to support that Mr. Hong was a visitor for the 60-day rule
purposes. Therefore, the 60-day rule protection is not available to him.
3. Also, Mr. Hong could not use “no services rendered during the year” exclusion
since he did render service during the days he was in Hong Kong, i.e., he had
picked up foreign clients at train station, arranged factory visit with clients in
Shunde etc.
4. Conclusion:
– Mr. Hong’s employment income is potentially wholly assessable to Hong
Kong salaries tax as he was considered having a [local] Hong Kong
employment
– Double taxation issue: since Mainland China and HKSAR have concluded
CDTA
– Tax credit method would be used to resolve Mr. Hong’s double taxation
issues, if any.

2
 b) His wife, Mrs. Hong

1. Applying these tests to this case, we find that both i); ii) and iii) are in Australia,
i.e., outside Hong Kong. It appears that the contract is foreign one.
2. It did not seem to support that Mrs. Hong was a visitor. (Note: if students argued
Mrs. Hong was a visitor for tax purpose, it's also acceptable)
And, if even so, the days she spent exceeded 60 days during the year. Therefore,
the 60-day rule protection is not available to her.
3. Mrs. Hong is entitled to time basis assessment based on her income attributable
services actually performed in Hong Kong.
4. Her assessable employment income is assessed based time basis apportionment
5. Including leave pay attributable to Hong Kong service
6. Based on 4. & 5. above, her assessable income would be
$830,000 x (155 – 20) / (365 – 20) = $324,782