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These notes are issued for the information of taxpayers and their tax - page 35 / 68

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35 / 68

which is a resident of One Side may not be taxed by the Other Side even if the dividends paid or the undistributed profits consist of profits or income arising

in that Other Side.

For example, where a Hong Kong resident

carries on business and makes profits,

through a permanent establishment situated in the the relevant profits may be taxed in the Mainland

company Mainland under the

provisions of Article 7 (Business company pays dividends out of its

Profits). When the profits, the Mainland

Hong Kong resident may not impose any

tax the

on the dividends, except insofar as such dividends are Mainland, or insofar as the shareholding in respect of

paid to a resident of which the dividends

are paid is Mainland.

effectively

connected

with

a

permanent

establishment

situated

in

the

Article 11

INTEREST

90.

The taxation principles laid down in paragraphs 1 and 2 of Article 11

are the same as those in paragraphs 1 and 2 of Article 10. What differs is that the source of interest is “the Side in which the interest arises”. Under the provisions of paragraph 6 of Article 11, interest will be deemed to arise in a Side when the payer is the Government of that Side, a local authority thereof or a resident of that Side. However, where the person paying the interest has in a Side a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by that permanent establishment, then such interest will be deemed to arise in the Side in which the permanent establishment is situated. In other words, the source of interest is the Side in which the payer who effectively bears the interest is

situated.

91.

The limitations of tax rates in the Side in which the interest arises are

in 2 tiers as follows:

(1)

the tax charged will not exceed 7% of the gross amount of the interest, except in the following situation;

(2)

interest is exempt from tax in the Side of source if it is

received by the Government of institutions mutually recognized

of

both

Sides.

(Currently,

the Other Side or any other by the competent authorities the institutions mutually

31

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