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
A land transport
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.
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.
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
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.
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.