THE Inland Revenue Department is looking at Hongkong International Terminals' (HIT) US$1.73 billion floating-rate note to check if it is a genuine commercial borrowing and not a case of 'round-tripping'. Round-tripping involves offshore borrowings motivated by tax efficiency rather than by commercial reasons. The Government has passed legislation to prevent companies from borrowing offshore to gain tax advantages. Section 61a of the relevant legislation applies to instances where 'the person, or one of the persons, who entered into or carried out the transaction, did so for the sole or dominant purpose of enabling the relevant person, either alone or conjunction with other persons, to obtain a tax benefit'. HIT's deal, maturing in 2004, allows it to tap Europe's enormous liquidity and deep pockets through a floating-rate loan which will require it to pay investors an interest rate of 0.85 percentage point over the six-month London interbank offered rate (LIBOR). HIT's parent, Hutchison Whampoa, has undertaken to take up 70 per cent of the issue, leaving $520.5 million for other investors. The Inland Revenue Department wants to make sure this deal is a genuine commercially-driven borrowing. It will be checking to ensure the floating rate note is not designed to put tax-free interest payments - Euro instruments are tax-free - into Hutchison's pockets, while allowing HIT to offset its interest payments to investors against tax in Hong Kong. The territory's tax law allows companies to borrow offshore in genuine commercial transactions. It was not intended to allow them to exploit the legislation to limit tax liability in the territory, said a senior inland revenue official. 'The legislation was never intended to allow that [round-tripping],' he said. 'The reasons the legislation was amended in its current format [to allow access to the Euro market] is because it was put to us that Hong Kong companies wanting to make general issues offshore would be precluded from doing something.' and we didn't want that to happen.' The Inland Revenue Department was not worried by genuine commercial issues targeting third-party investors, he said.