[Note] both Version 1 and 2 are acceptable and correct. It doesn’t matter Needmoney has its immediate holding with Doreash or Shenna direct. b) The relevant tests are available in dealing with source of profits concerning interest income (12%) L._| There are two tests: provision of credit and operations test 2. | Provision of credit: ‘the place where the loanable funds first made available to borrowers + the place the subsequent settlement is irrelevant + only applies to “simple” borrowing and lending + Simple borrowing and lending means the lender [taxpayer] only lends out its surplus and idle funds ‘+ Also, there isno systematic and continuous injection or bumping of loanable fund to the lender [taxpayer] + _The test applies to non financial institution (Non Fi) only Operations test + what the taxpayer's has done to earn the interest income in question + the geographic location of such work performed + applies to lending and borrowing transactions that are beyond simple borrowing and lending ‘+ itapplies to transaction arrangements where there are funding systems to continuously inject loanable funds to lender [the taxpayer] + Therefore, operations testis primarily applicable to interest income obtained by Fl «¢) Advise Doreash Company Ltd. whether the interest income received was taxable to profits tax in Hong Kong (10%) jasic scope of charge under 5.14, ‘+ every person who carries on a trade, business or profession in Hong Kong ‘+ profits derived from such trade, business or profession ‘+ and is chargeable to profits tax on profits arising in or derived from Hong Kong 2. | Seetion 15(4)(f) of the inland Revenue Ordinance, sums received by or accrued to 6 corporation carrying on a trade, profession or business in Hong Kong by way of interest derived from Hong Kong to be chargeable receipts. 3._| Since Dorcash wasn'ta Fi, so s.15(1)(i) isn't applied 4.__| Dorcash lent surplus fund to Needmoney, the Corporate Treasure Centre ("CTC") 5. | Dorcash and Needmoney were engaged in “simple” borrowing and lending transactions within the Group. 6. | Provision of credit was therefore applied in the determination of the source of interest income derived and obtained by Dorcash, 7. | Since the eredit or loanable funds were provided to Needmoney outside Hong Kong, the interest income does not arise in Hong Kong. & | Thus, interest income obtained by Dorcash is not chargeable to Hong Kong profits tax.