Source of income case study assignment (30 points)
(Group assignment – submit to ummoodle – words file or pdf file.
Mr Peter Lee, a British subject but also a Hong Kong resident, was recruited in Hong
Kong by Awl (Hong Kong) Limited (AHL). His employment contract was negotiated,
entered into, and enforceable in Hong Kong. AHL is a member of an international
group of companies whose line of business is the production of health supplements
for the world market. The ultimate parent of AHL is Health Technology (HT), a
company incorporated in the UK.
AHL is a regional headquarters for the group in Asia with no production activities. Its
role is to supervise the operations of other group companies in Hong Kong so as to
ensure that the policies made by HT are carried out. All the salaries expenses
incurred by AHL are reimbursed by HT with an additional 5% to cover office
expenses. Peter’s salaries were paid into his personal bank account in Hong Kong.
Peter’s designation was nutritionist. His main duty was to work together with the
chemists in the laboratories in Hong Kong and the management team in the UK
office. Peter spent 120 days in the UK during visits working with the management
team in the year of assessment 2022/2023. His total salary for the year was
$2,400,000.
Mr Lee’s wife (Sophia, a Hong Kong resident) worked for a German based company
specialized in trading car components. Her employment contract was concluded in
Germany. Her job is to represent the interests of the German company in Hong Kong,
where it has a subsidiary company. She is paid by the Hong Kong subsidiary in Euros
into her bank account in Germany. Her payroll costs were charged back to her
employer in Germany. During the year of assessment 2022/2023, she was present in
Hong Kong for 120 days. For the other days in the year, she was traveling over Europe
to represent the German company or was working at the German company. Sophia’s
total salary for the year was €800,000.
Required:
a) What are the factors which the Inland Revenue Department would consider to be
relevant in determining the source of employment for Salaries Tax purpose? (10
points)
b) Applying these factors to Peter’s case, explain whether his employment has a
Hong Kong source or not. (10 points)
c) Applying these factors to Sophia’s case, explain whether her employment has a
Hong Kong source or not. (10 points)