mere purchase by that permanent establishment of goods or merchandise for the enterprise. This is because purchasing activities do not directly generate profits in the overall business activities. In fact, it is very difficult to compute the part of the total business profits that is attributable to such purchasing activities.
The profits to be attributed to the permanent establishment must be
determined by the same method year by year unless there is good and sufficient
reason for a change.
More particularly, the method should not be changed
merely because some other method would produce more favourable results.
“Business profits” may include, apart from profits derived from
business activities, income and interest. The taxation
such as of these
that from categories
immovable property, dividends of income is governed by other
Articles of the Comprehensive Arrangement. To clarify the application of Article 7 in relation to other Articles, paragraph 7 of Article 7 provides that where profits include items of income which are dealt with separately in other Articles of the Comprehensive Arrangement, then the provisions of those Articles will not be affected by the provisions of Article 7. It should be noted, however, that some Articles contain provisions stating that the provisions of
Article 7 paid is
shall apply effectively
if the relevant property in respect of which the income is
of Article 12, and paragraph 2 of Article 20.
SHIPPING, AIR AND LAND TRANSPORT
Article 8 provides that revenue and profits derived by an enterprise
of One Side (i.e. an enterprise of the Mainland or an enterprise of Hong Kong) from the operation of ships, aircraft or land transport vehicles in shipping, air and land transport businesses (except when the ship, aircraft or land transport vehicle is operated solely between places in the Other Side) shall be exempt from tax in the Other Side. The taxes exempted in the Mainland include enterprise income tax and business tax. Enterprise income tax is calculated by reference to profits whereas business tax is calculated by reference to revenue. Accordingly, the Article specifically includes revenue and profits in the scope
of the exemption.
Revenue and profits refer to revenue and profits derived by