ACCT 4410 Taxation

Take home assignment # 6 (Topic: Source of Profits – Interest Income)

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 points 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
6. Save your file as [studentID].pdf for submission purpose via Canvas online
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion; and references
8. The total marks of this assignment are 30. It accounts for 5% of total course
assessment.
9. Deadline for submission: 29 April 2023 – Submit the completed assignment
to the online course platform – canvas; by 5:00 p.m.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L1; L2 and L3
Subject: Source of Profits – Interest Income
Date: 19th April 2023

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Take home exercise #6: ACCT 4410 Taxation – 2023 Spring Semester
Deadline for submission: 29 April 2023, by 17:00 via Canvas submission
Case background:

1. The Shenna Investment Holdings Ltd. (“Shenna”) and its subsidiaries (“the Group”), which is
headquartered in New Zealand. The group management functions are performed by the
Shenna in New Zealand.

2. Dorcash Company Ltd. (“Dorcash”) is one of the subsidiaries of the Group. Dorcash was
incorporated in Hong Kong. It has an office in Hong Kong. It acts as an investment holding
company and engages in the management of its subsidiaries.

3. Needmoney Company Ltd. (“Needmoney”), a fellow subsidiary of Dorcash, was incorporated

in New Zealand. Needmoney acts as the Corporate Treasury Center (“CTC”) of the Group and
provides financial services, including but not limited to short- and long-term funding to its
affiliates within the Group.

4. Under the inter-company loan and short-term deposit arrangements, all companies within
the Group (of course, including Dorcash) with surplus funds will receive interest from
Needmoney, the CTC as income.

Information about a typical transaction between Dorcash and Needmoney in the year of
assessment 2022/23:

5. Dorcash placed its surplus funds with Needmoney under certain interest-bearing
arrangements.

6. Dorcash remitted the funds by direct wire transfer through its bank account in Hong Kong to
Needmoney’s bank account in New Zealand. Needmoney did not maintain any bank account
in Hong Kong. The funds did not pass through a bank within Hong Kong before being
transferred to Needmoney in New Zealand.

Tax positions that were taken and agreed with the Inland Revenue Department:

7. The transaction arrangement above (point 5. and 6.) did not form a transaction or scheme,
or any part thereof, contrived to avoid or evade any profits tax liabilities, whether in Hong
Kong or other tax jurisdictions.

8. Dorcash did not lend to or borrow from any other company or entity within the Group other
than Needmoney.

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Required:

a) Draw an annotated diagram to summarize the above case points from 1. to 6.

(8 marks)

b) Concerning interest income itself, what are the relevant tests are available in tackling the
issue “source of profits”?
Note: That is, without looking at the above specific case given for the time being, what the
tests are. (12 marks)
c) Imagine you were the tax adviser of Dorcash Company Ltd., advise Dorcash whether the
interest income it received in the year of assessment 2022/23 was taxable to profits tax
in Hong Kong. (10 marks)
[End of Assignment 6]