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These notes are issued for the information of taxpayers and their tax - page 19 / 68





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  • (1)

    improvement of existing production facilities and products, selection of technical know-how, or enhancement of supervisory and management skills, etc.;

  • (2)

    feasibility studies of investment projects and selection of design plans.

43. The counting of “a period or periods aggregating more than 6 months within any 12-month period” may commence with any month during the course of a service contract. Where services have been furnished by an enterprise directly or through employees or other personnel in the Other Side for a continuous or cumulative period of more than 6 months within any 12-month period, the enterprise will be considered to have a permanent establishment in the Other Side. Profits attributed to that permanent establishment will be subject to tax in the Other Side in accordance with the provisions of Article 7 (Business Profits) (see paragraphs 55 to 66 below). In the determination of whether a Mainland enterprise furnishing services should be regarded as having a permanent establishment in Hong Kong, the criterion is whether services are furnished by the enterprise directly (e.g. a sole-proprietor) or through employees or other personnel in Hong Kong for a continuous or cumulative period of more than 6 months (within any 12-month period). There is no definition of the term “month” in the Comprehensive Arrangement. The Commentary of the United Nations Model has not given further explanations of the relevant provision and has not specified clearly how the 6 months are to be counted. Hence the Mainland and Hong Kong have adopted different counting methods. The Mainland considers that since only “month” is provided as a counting unit under the Comprehensive Arrangement, she is entitled not to consider the number of days in its implementation. The Mainland adopts the following method of counting the months: the Mainland will take the period from the month in which an employee of a Hong Kong enterprise arrived in the Mainland for furnishing services up until the month in which the project was completed and the employee left the Mainland as the relevant period. If during this relevant period, no service was provided by the employee in the Mainland for a period of 30 consecutive days, 1 month can be deducted. If it results in more than 6 months by using this counting method,

the Hong Kong enterprise will be considered to have establishment in the Mainland. For a project that lasts for months, any 12-month period commencing from the month

a permanent more than 12 the employee


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