Relax the Restrictions of Section 39E of the Inland Revenue Ordinance

MR CHAN KIN-POR (in Cantonese): President, my supplementary question is about the written reply given by the Government to Dr LAM Tai-fai on October 21 and today’s main reply. Both replies mention the practical difficulties in relaxing the restrictions. I would like to know whether the Government has actually made any effort in addressing these practical difficulties, because if section 39E is indeed unfair to Hong Kong enterprises, some legitimate businessmen will, after all, be affected innocently. This is very unfair to them. May I ask what effort the Government has made to address the practical difficulties mentioned just now?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): President, just now I mentioned the arrangements made for the manufacturers when I replied to the supplementary question of Dr LAM Tai-fai; and I consider it to be irrelevant to section 39E.

Section 39E is in itself an anti-tax avoidance provision, and it has specific details. There are difficulties if we are to, having regard to the operation explained by Hong Kong enterprises, amend section 39E in the light of those special operations. As I have explained in my reply earlier: If the machinery and plants are leased for use by Mainland enterprises, how should their usage be determined? Is the usage completely in line with the equirement of generating profits in Hong Kong? It is quite difficult to do so. Certainly, I have to point out that if it is really necessary to amend section 39E as a result of this, the entire provision on tax avoidance might need to be amended as well. Moreover, a lot of efforts have to be made before the loopholes can be plugged. However, we welcome the industry to reflect their views on this matter to us.

Regarding this issue, continuous communication has been maintained between the IRD and the industry. We are more than happy to maintain communication with the industry in this regard.

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