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These notes are issued for the information of taxpayers and their tax - page 29 / 68

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an enterprise from cross-border shipping, air and land transport businesses. Revenue and profits of an enterprise derived from services provided in the Other Side (other than those from cross-border shipping, air and land transport) will not be exempt in that Other Side if such services are provided through a permanent establishment situated in that Other Side. This Article also applies to revenue and profits derived from participation in a partnership business, joint venture business or international business agency.

Shipping transport

68.

Under Article 8, profits derived by a Hong Kong shipping enterprise

from its shipping business will be taxed in Hong Kong alone. In this regard, the exercise of the taxing rights is subject to the provisions of section 23B of the Ordinance. For example, where an enterprise is deemed to be carrying on a business in Hong Kong as an owner of ships, “relevant sums” (as defined in section 23B(12)) does not include any sums derived from any relevant carriage shipped aboard a “registered ship” (as defined in section 23B(12)) at any location within the waters of Hong Kong and proceeding to sea therefrom. The ratio of the relevant sums to the total shipping revenue is used to apportion the worldwide shipping profits of the Hong Kong ship-owner and calculate the assessable shipping profits derived from Hong Kong. Accordingly any sums from relevant carriage shipped aboard a registered ship at any location within the waters of Hong Kong and proceeding to sea therefrom by a Hong Kong

shipping enterprise will continue to be exempt from tax in Hong Kong.

Air transport

69.

Likewise, profits derived by a Hong Kong air transport enterprise

from its air transport business will be taxed in Hong Kong alone. According to section 23C of the Ordinance, “relevant sums” (as defined in section 23C (5)) includes any sums derived from any relevant carriage shipped in Hong Kong and any relevant charter hire. The proportion of the relevant sums to the total revenue is used to apportion worldwide aircraft profits and calculate assessable aircraft profits derived from Hong Kong. By virtue of section 23C(2A), sums from relevant carriage and charter hire from the Mainland derived by a Hong Kong air transport enterprise, that are exempt from tax in the Mainland under the Comprehensive Arrangement, are included as relevant sums in calculating

profits chargeable to profits tax in Hong Kong.

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