THE judiciary has proved to be a generous source of unwanted obstacles for Hong Kong's professional firms in providing advice to their clients. A stream of recent court cases have raised more questions than they have answered in giving guidance for future corporate activity on tax issues. One apparently small recent case in particular, is creating large problems for tax lawyers and accountants in giving advice to their clients. In the process, it is leading to speculation about Hong Kong's status as a location that is part of international tax planning arrangements. The Supreme Court case causing headaches for advisers concerns a nominee company established in Hong Kong called Bartica Investment. It involved a basic tax arrangement used by an Australian family business. The arrangement utilised bank accounts in the territory which were rolled over. According to the judgment, because the family had established a company domiciled in the territory - which had books and records in Hong Kong, and held bank accounts which had been rolled over - there was an activity associated with its establishment. The company could therefore be regarded as having carried on business in Hong Kong. On the face of it, a small point. But this very point has major implications for how professionals can in future advise their offshore clients on such tax planning arrangements. Tax experts believe the ruling has made even passive bank account investments held in Hong Kong from overseas subject to tax. As a result, many professional firms are being left with no choice but to advise many of their clients to invest funds outside of Hong Kong. According to Coopers & Lybrand tax partner Jeffery May 'the case is starting to impact on Hong Kong's reputation' for effectiveness in tax planning arrangements. While these types of arrangements involving foreign investors have always been a grey area in Hong Kong, the decision had put a very much bigger cloud over their validity, he said. Mr May is now advising any clients who have doubts to make such investments elsewhere. He is not alone. Many other tax experts are telling their clients to shift such arrangements to Singapore - where returns on such investments are not subject to tax. The impact of professionals giving such advice is a factor which cannot be underestimated in the general context of the territory's economy, as tax experts are quick to point out. Accounting firms and lawyers have long been beneficiaries of the establishment of nominee companies, having in many cases been appointed to the boards of such entities. Certainly, though, it would appear there is a flow-on effect to other parts of the territory's economy. The Bartica case is not the only recent decision to perplex professionals. Perhaps the most controversial legal precedent set in recent times was in the Magna Industrial decision. On that occasion, serious doubts were raised as to whether subsidiaries under the control of a parent would continue to be treated as 'semi-autonomous' entities, and therefore be allowed to avoid paying tens of millions of dollars in tax. Professionals claimed the decision broke with established legal logic and precedents - and resulted in uncertainty among corporates about their future business dealings. Professionals believe the Magna decision is also making it harder from their point of view in advising their corporate clients. They see the Magna ruling as throwing the whole area of sourcing of trading profits by companies into complete uncertainty. The recent developments mean tax specialists are keeping a closer eye than ever on legal precedents - ensuring plenty of work for the territory's legal publishers.