AA Ltd (Company) is a private company incorporated in Hong Kong, and wholly owned by a German company. The Company is appointed by its parent company as the sole distributor of the group products in the Far East region. In respect of the Hong Kong market, the Company appointed several local sub-agents to procure and negotiate with buyers. The sale contracts were then signed by the company on behalf of its parent company. In respect of other areas in the region, the Company appointed sub-agents in Singapore and Malaysia who sought buyers and accepted orders on the Companys behalf. Prices were approved and sale contracts were prepared by the Company in Hong Kong. The sub-agents then arranged to have the contracts signed in the buyers countries. The products of all sales in Hong Kong and overseas were shipped directly to the customers from Germany. The Company did not keep stock but collected the payments from customers on behalf of the parent company. After-sale service was also done by the Company. The Company was remunerated by a commission on all sales and deliveries made in the Far East region. Recently the parent company invented a new product. The patent right in respect of the manufacture of the product was duly registered in Germany. Two separate agreements were signed between the parent company and two manufacturers, one in Hong Kong and the other in China for the provision of the right to use the manufacturing know how. The negotiation and follow up work were carried out by the Company in Hong Kong. Royalties of HK$500,000 and US$80,000 are payable by the manufacturers in Hong Kong and China respectively to the parent company. The Company will receive a service fee of 1% of the royalties for the provision of training and assistance rendered to these manufacturers. Required: By reference to the information given, discuss the Hong Kong tax positions of (1) AA Ltd. and (2) its German parent company. Ignore overseas tax implications.