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These notes are issued for the information of taxpayers and their tax - page 30 / 68

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Land transport

70.

Article 8 is regarded as having application to a Hong Kong

enterprise that carries on a business of land business is subject to tax under section 14 of

transport.

A land transport

the

Ordinance.

That

is,

any

person who carries on a land transport business in Hong Kong is chargeable to

tax on the profits arising in or derived from Hong Kong.

71.

According to Article 8, a Hong Kong land transport enterprise will

only be subject to tax in Hong Kong and will be exempt from enterprise income tax and business tax in the Mainland. Similarly, revenue earned by a Mainland land transport enterprise from Hong Kong uplifts to the Mainland

will be exempt from profits tax in Hong Kong.

72.

A cross-border land transport business between the Mainland and

Hong Kong usually takes the form of a cooperative enterprise. Typically the Hong Kong participant would make his investment in the form of vehicles and capital. The Mainland participant would be responsible for obtaining permits

and

licences,

tax

compliance

and

other

management

services.

The

Hong

Kong participant would participant for uplifts participant could enter

be responsible for Hong Kong uplifts and the Mainland

in the Mainland. into a contract with

Occasionally, the Hong Kong the customer for the return trip.

This kind of cooperative enterprise is regarded as cross-border transport operated by residents of both

a joint Sides.

business of It follows,

pursuant to paragraph 2 of Article 8, that the respective shares derived by each participant from the joint business operation would from tax by the Other Side and would be taxed in the Side of

of profits be exempt which the

participant is a resident in accordance with its taxation laws.

Article 9

ASSOCIATED ENTERPRISES

73.

For the purpose of relieving its total tax burden, a cross-border group

may, by means of altering the pricing or business charges (i.e., the transfer pricing method), attempt to transfer the profits derived by an enterprise of the group from cross-border business activities to an associated enterprise. Article 9 provides that taxation authorities may make adjustments to profits where transactions between associated enterprises have not been entered into

on an arm’s length basis.

26

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