Tax loss potential sparks tightening with tougher bill

A proposed overhaul of the law relating to duty on trademark royalties will deplete profits tax revenue by up to HK$200 million a year.

Tax chiefs have been forced to overhaul the Inland Revenue Ordinance in the wake of a landmark court ruling which threw out the right to levy duty on trademark royalties earned from goods sold outside the SAR.

'Given that a substantial part of our manufacturing activities have been re-located outside Hong Kong, this decision may give rise to significant revenue losses from profits tax, estimated to be in the order of HK$200 million a year,' a government spokesman said yesterday.

The Court of Final Appeal has ruled that only royalties paid on goods manufactured in Hong Kong are chargeable to profits tax.

A composite bill will be introduced into Legco to amend the provision relating to profits tax on these royalties. It also aims to clamp down on tax evasion and scrutinise depreciation allowances for buildings.

In its bid to tighten anti-evasion provisions, the bill will, in particular, clamp down on tax avoidance schemes - such as trusts and fake public issues of debentures overseas.