Unit 5 Tutorial Questions

Q1. A lecturer wanted to make some investment. He chose commodity futures. In the year ended 31
March 2019, he made a gain of $120,000 in buying and selling cotton future in Hong Kong
Commodity Exchange.
Required:
List out all the factors which are relevant in determining whether the gain is chargeable to profits
tax. Briefly explain.

Q2. Determine whether the following income earned by a corporation carrying on retail business in
Hong Kong is taxable and briefly explain.
a. Profit on sale of goods in Hong Kong
b. Rental income (property located in Shanghai)
c. Profit on sale of motor vehicle used for the delivery of goods
d. Dividend income from listed shares
e. UK Co.’s sale profit of machinery to a Hong Kong company

Q3. ABC Manufacturing Co. Ltd. in Hong Kong sub-contracts its manufacturing work to a factory in
Shanghai, PRC. ABC will supply the raw materials only and the PRC entity provides the land,
labour and control for the manufacturing process. Discuss how the profits of ABC will be treated.

Q4. Briefly explain the following cases’ profits derived taxable or not?
a) US Customer A faxes a purchase order to the Hong Kong office of ABC Co. ABC Co. accepts
the purchase order in Hong Kong and faxes a sales confirmation back to US Customer A.
b) US Customer B sends purchase orders to Hong Kong but does not require any
acknowledgement. ABC Co approves the orders on receipt in Hong Kong but does not issue
sales confirmations. It then sends a fax to the Chinese factory instructing them to manufacture
the garment and ship them directly to the US.
c) US Customer C send its buying manager to Hong Kong once a year. While in Hong Kong he
signs a sales contract with ABC Co. for the supply of the garments.
d) The sales manager of ABC Co. visits the US and signs a sales contract with US Customer D.
The sales manager informs the buying manager of the new order. The buying manager goes to
China and negotiates the purchase of the garments from the Chinese factory. While in China,
the buying manager signs a contract to buy the garments.
e) ABC Co. appoints a US Co as its US agent. The agent is authorized to negotiate and conclude
sales contracts on behalf of ABC Co. The agent faxes details of the orders both to ABC Co in
HK and to its Shanghai buying office. The Shanghai office orders the garments from a Chinese
factory and ships them to the US.