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Abstract
Hong Kong traditionally has only a source-based tax regime. Companies carrying on business in Hong Kong will not be taxed in Hong Kong on their foreign-sourced income. However, recent cases have expanded the interpretation of source and created contrasting lines of case law. The fact that the source/business dichotomy applies to income from the performance of activities is authoritatively established in CIR v. The HongKong & Whampoa Dock Co. Ltd. The court found that the test of the source of the profits is not to be found merely by answering the question where does the respondent company carry on business, and then saying that because the company carries on business in Hong Kong, therefore Hong Kong is the source of the profits. The Commissioner of Taxation in the CIR v. Euro Tech (Far East) Ltd. case gave 3 examples where profits earned by a taxpayer carrying on businesses in Hong Kong would not be subject to tax in Hong Kong: 1. interest on deposits outside Hong Kong, 2. provision of a service or services outside Hong Kong, and 3. the development of land outside Hong Kong.