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These notes are issued for the information of taxpayers and their tax - page 31 / 68

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Adjusting the profits of an enterprise of One Side

74.

Paragraph 1 of Article 9 provides that in the following two different

situations, if the commercial or financial relations between the two enterprises are different from those between independent enterprises, any profits which would have accrued to one of the enterprises but have not done so by reason of those relations, may be included in the profits of that enterprise and taxed as

such.

The two situations are:

  • (1)

    an enterprise of One Side participates directly or indirectly in the management, control or capital of an enterprise of the Other Side; or

  • (2)

    the same person participates directly or indirectly in the management, control or capital of an enterprise of One Side and an enterprise of the Other Side.

Making an appropriate adjustment to the profits of an enterprise of the Other Side

75.

Under the provisions of paragraph 1 of Article 9, where One Side

includes in the profits of an enterprise of that Side profits of an enterprise that have been charged to tax in the Other Side, the Other Side shall make an appropriate adjustment to the amount of the tax charged on those profits in

accordance with the provisions of paragraph 2.

76.

Insofar as Hong Kong is concerned, “appropriate adjustment” means

where the Inland Revenue Department agrees fully with the calculation of the Mainland, the Hong Kong enterprise can get an adjustment of the full amount; where the Department agrees with an amount less than that worked out by the Mainland, the Hong Kong enterprise can get an adjustment of that smaller amount; where the Department disagrees with the Mainland on the adjustment,

no adjustment will be made.

The competent authorities of both Sides will, if

necessary, consult each other in determining such adjustment.

77.

The Hong Kong enterprise can present its case to the Inland Revenue

Department under Article 23 (Mutual Agreement Procedure) if its taxation treatment is not in accordance with the provisions of the Comprehensive

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