Hong Kong Tax Analysis

Latest Tax Analysis

A recent Court of Appeal case ruling on the taxability of royalties and upfront payment

H118/2024 – 30 October 2024

Hong Kong's Court of Appeal (CA) recently released its decision on Patrick Cox Asia Limited v. The Commissioner of Inland Revenue [2024 HKCA 944], regarding the taxability of an upfront payment received under a business cooperation arrangement and royalties arising from a sub-licensing arrangement. In its judgment, the CA held that the upfront payment received was not capital in nature and was sourced in Hong Kong as the relevant agreements were concluded in Hong Kong, hence subject to taxation. For the royalty income under the sub-licensing arrangement, the CA rejected the Board of Review (BoR)’s decision that it was entirely onshore-sourced on the grounds that the royalties were derived from activities both in and outside Hong Kong. The CA remitted the issue back to the BoR for further consideration as to whether only a small part of the royalties would be onshore-sourced, based on an apportionment approach.

In this article, we summarize the facts of the case and highlight the reasoning behind the judgment.

2024

H118/2024 – 30 October 2024

A recent Court of Appeal case ruling on the taxability of royalties and upfront payment
[English]

H117/2024 – 15 October 2024

Court of First Instance ruled management fees paid to a related interposed management service agent not deductible
[English]

H116/2024 – 19 July 2024

Court of Appeal denied intra-group stamp duty relief for limited liability partnerships
[English]

H115/2024 – 28 February 2024

2024-25 Budget Analysis: A pragmatic budget with a view to achieving fiscal sustainability
[English] [Simplified Chinese]

2023

H114/2023 – 18 October 2023

Hong Kong’s Family Office Regime Poised to Draw Asia’s Wealth
[English] [Simplified Chinese]

H113/2023 – 8 March 2023

How Global Minimum Tax implementation timelines could affect top-up tax liabilities
[English]

H112/2023 – 22 February 2023

2023-24 Budget Analysis: A sustainable, balanced budget to embark on a new journey for Hong Kong's post-pandemic economy
[English] [Simplified Chinese]

2022

H111/2022 – 17 November 2022
Court of Appeal upheld upfront lump sum spectrum utilisation fees as non-deductible
[English]

H110/2022 – 29 October 2022
Foreign-sourced income exemption (FSIE) regime
Draft legislation and guidelines released
[English] [Simplified Chinese]

H109/2022 – 15 August 2022
Court of Final Appeal affirmed directors not liable to additional tax for signing incorrect returns
[English]

H108/2022 – 5 August 2022
Court accepted limited liability partnership for intra-group stamp duty relief
[English]

H107/2022 – 31 May 2022
The Impact of Pillar 2 on Hong Kong's Real Estate Sector
[English]

H106/2022 – 10 May 2022
Court of First Instance ruled interposed Hong Kong trading business not taxable
[English]

H105/2022 – 23 February 2022
2022-23 Budget Analysis: A comprehensive and forward-looking budget set to lead Hong Kong towards economic recovery
[English] [Simplified Chinese]

2021

H104/2021 – 6 August 2021
Court of Appeal rules vesting of Hong Kong stock by operation of merger law not chargeable with stamp duty
[English] 

H103/2021 – 26 April 2021
Codification of the tax treatment of court-free amalgamations of companies
[English] 

H102/2021 – 23 March 2021
Return of the Withholding Tax Deduction - May the Relief be with you
[English] [Simplified Chinese]

H101/2021 – 24 February 2021
2021-22 Budget Analysis: Pragmatic budget amid Hong Kong's record fiscal deficit paves way for post-pandemic recovery
[English] [Simplified Chinese] 

2020

H100/2020 – 23 October 2020
Inland Revenue Department updates guidance on revenue recognition under HKFRS 15 and appropriation of stock under HKAS 2
[English]

H99/2020 – 19 October 2020
BEPS Pillar Two – Impact on Hong Kong
[English] [Simplified Chinese] 

H98/2020 – 23 September 2020
Court of First Instance ruled upfront lump sum spectrum utilisation fees non-deductible
[English]

H97/2020 – 28 August 2020
Inland Revenue Department updated guidance on taxation and deduction related to intellectual property
[English]

H96/2020 – 23 July 2020
Inland Revenue Department issues revised guidance on Hong Kong Advance Pricing Arrangements
[English] [Simplified Chinese] [Japanese]

H95/2020 – 22 July 2020
Inland Revenue Department issues guidance on unified tax exemption regime for funds
[English]

H94/2020 – 11 May 2020
IRD revises guidance on advance rulings
[English] [Simplified Chinese] 

H93/2020 – 1 April 2020
IRD issues updated guidance on taxation of e-commerce transactions and digital assets
[English] [Simplified Chinese] 

H92/2020 – 26 February 2020
2020-21 Budget Analysis: A compassionate but prudent budget in the context of Hong Kong's fiscal deficit
[English] [Simplified Chinese] 

Year 2019

H91/2019 – 7 August 2019
IRD issues guidance on application of PE profit attribution rules
[English] 

H90/2019 – 30 July 2019
IRD issues new guidance on Hong Kong Transfer Pricing matters
[English] [Simplified Chinese] [Japanese]

H89/2019 – 22 July 20119
Court of Final Appeal lump sum receipt arising from redevelopment arrangement non-taxable
[English]

H88/2019 – 16 May 2019
IRD issued guidance on tax deduction for R&D expenditures
[English] [Simplified Chinese]

H87/2019 – 27 February 2019
2019/20 Budget Analysis
[English] [Simplified Chinese]

Year 2018

H86/2018 – 3 October 2018
Overview of tax law changes under new BEPS law
[English] 

H85/2018 – 22 January 2018
IFRS 17: Tax issues in Asia Pacific
[English]

H84/2018 – 27 July 2018
Court of Appeal rules "Initial Payment" arising from redevelopment arrangement taxable
[English] 

H83/2018 – 13 July 2018
Hong Kong passes BEPS and Transfer Pricing laws
[English] [Simplified Chinese] [Japanese]

H82/2018 – 4 May 2018
Enhanced deduction for R&D expenditures introduced
[English] [Simplified Chinese]

H81/2018 – 18 April 2018
Proposed expansion of deduction for purchase of intellectual property rights
[English] [Simplified Chinese]

H80/2018 – 28 February 2018
2018/19 Budget analysis
A holistic budget with forward-looking vision
[English] [Simplified Chinese]

H79/2018 – 27 February 2018
Employer-employee relationship
[English] [Simplified Chinese]

H78/2018 – 6 February 2018
Permanent Establishments
[English]

H77/2018 – 8 January 2018
Hong Kong to introduce statutory transfer pricing regime
[English] [Simplified Chinese] [Japanese]

H76/2018 – 5 January 2018
Two-tiered profits tax rates regime introduced in Hong Kong
[English] [Simplified Chinese]

Year 2017

H75/2017 – 1 August 2017
Hong Kong signs multilateral instrument to modify bilateral tax agreements
[English] [Simplified Chinese]

H74/2017 – 28 March 2017
Oops!…They did it again
Hong Kong's aircraft leasing bill
[English] [Simplified Chinese]

H73/2017 – 22 February 2017
2017/18 Budget Analysis
Comprehensive, but cautious budget with commitment to review long-term tax policy
[English] [Simplified Chinese]

H72/2016 – 16 January 2017
Financial Institutions: Practice versus Law and Foreign Tax Credits?
[English] [Simplified Chinese]

Year 2016

H71/2016 – 16 December 2016
Hong Kong Consultation on measures against BEPS
[English] [Simplified Chinese] [Japanese]

H70/2016 – 6 April 2016
Impact of BEPS Action 6 on source-based tax jurisdictions: the case of Hong Kong
[English] [Simplified Chinese]

H69/2016 – 16 March 2016
Potential impact of proposed Regulatory Capital Securities tax legislation to Hong Kong financial institutions
[English] [Simplified Chinese]

H68/2016 – 24 February 2016
2016/17 Budget Analysis - Commitment to long-term growth, but lack of exciting relief measures
[English] [Simplified Chinese]

H67/2016 – 20 January 2016
IRD partially clarifies tax treatment of court-free amalgamations
[English] [Simplified Chinese]

Year 2015

H66/2015 – 11 December 2015
Hong Kong aims to sharpen its competitive edge with new corporate treasury centre tax regime
[English] [Simplified Chinese]

H65/2015 – 18 November 2015
Hong Kong profits tax exemption for private equity funds: Now a reality
[English] [Simplified Chinese]

H64/2015 – 22 July 2015
A Hong Kong perspective on the EU efforts to prevent harmful tax competition
[English] [Simplified Chinese]

H63/2015 – 12 May 2015
Update on proposed Hong Kong profits tax exemption for private equity funds
[English] [Simplified Chinese] 

H62/2015 – 21 April 2015
New protocol for Hong Kong-China double taxation arrangement signed
[English] [Simplified Chinese]

H61/2015 – 25 February 2015
2015/16 Budget Analysis: Comprehensive budget with diverse initiatives but housing measures are fewer than expected
[English] [Simplified Chinese] [Traditional Chinese]

H60/2015 – 13 January 2015
Hong Kong courts rule lump sum received on termination of contract not taxable
[English] [Simplified Chinese] 

Year 2014

H59/2014 – 6 August 2014
Hong Kong signs first tax information exchange agreement
[English] [Simplified Chinese]

H58/2014 – 16 June 2014
Proposal to extend Hong Kong’s offshore fund exemption to private equity: A step in the right direction
[English] [Simplified Chinese]

H57/2014 – 25 March 2014
Hong Kong’s new Companies Ordinance creates opportunities for tax-free amalgamations
[English] [Simplified Chinese] [Japanese]

H56/2014 - 17 March 2014
Newly published advance ruling takes a hard line in determining the locality of profits
[English] [Simplified Chinese] [Japanese]

H55/2014 - 26 February 2014
2014/15 Hong Kong Budget Analysis: Visionary budget, cutting down "sweeteners" and few tax measures for individuals
[English] [Simplified Chinese] [Japanese]

H54/2014 - 26 February 2014
2014/2015 Hong Kong SAR Budget Highlights - Summary of allowances, deductions & tax rates
[English] [Simplified Chinese] [Japanese]

Year 2013

H53/2013 - 20 December 2013
Update on Inland Revenue Department's views on tax treatment of share-based payment transactions: Opportunities and uncertainties
[English] [Simplified Chinese] [Japanese]

H52/2013 - 22 November 2013
Hong Kong CFA holds unrealized gains not chargeable to profits tax
[English] [Simplified Chinese] [Japanese]

H51/2013 - 22 August 2013
Development of Islamic finance in Hong Kong
[English] [Simplified Chinese]

H50/2013 – 27 February 2013
2013/14 Budget Analysis: Compassionate, pragmatic and cautious with clear positioning of Hong Kong
[English] [Simplified Chinese] [Japanese]

H49/2013 – 4 January 2013
Hong Kong court disallows deduction for manufacturing assets used in China
[English] [Simplified Chinese] [Japanese]