Question 2 (18 marks)

Jack is the sole shareholder of Co-A, a company incorporated and carrying on business in Hong

Kong. Co-A commenced business on 1 September 2017 and closes its accounts on 31

December each year. Co-A closed its first and second accounts on 31 December 2018 and 31

December 2019, respectively.

Jack intends to acquire all of the shares in another Hong Kong-incorporated company, Co-B

from an independent seller. Co-B holds an immovable property ("the Property") in Hong Kong,

which is an office building leased out for rental income.

It has been agreed between Jack and the seller that the consideration for all the shares in Co-B

will be $20M. In addition, Jack will pay the seller $1 SM for an assignment of a shareholder's

loan which the seller has made to Co-B. A separate assignment deed will be executed for the

assignment of the shareholder's loan.

Jack has appointed Chan & Wang, a tax consultancy firm to advise the tax implications on the

respective tax issues.

Required:

(a) Determine, with explanation in support, the basis periods of Co-A for the years of

assessment 2017/ 18, 2018/19 and 2019/20.

(6 marks)

(b) Explain with calculation the Hong Kong stamp duty implications arising from the

acquisition of the shares in Co-B by Jack.

(7 marks)

( c) Explain the respective ethical considerations of Chan & Wang to be undertaken:

(i) before accepting the tax service engagement with Jack, and

(ii) during the provision of the tax services to Jack.

(5 marks)

(Total for Question 2: 18 marks)

4

Question 3 (13 marks)

Jason is an IT engineer employed by Blockchain Ltd. ("Blockchain"), which is carrying on

cryptocurrency business in Hong Kong. Jason has a plan that he will terminate his existing

employment contract with Blockchain and incorporate a self-owned Hong Kong company

("Service Co."), which will enter into an IT service agreement with Blockchain.

Under the IT service agreement, Jason will provide IT consultancy services to Blockchain in

the capacity of Service Co. 's employee. An annual fee will be payable by Blockchain to Service

Co. at an amount equivalent to Jason's annual salary under the existing employment contract

with Blockchain. The fee will be payable on a monthly basis through bank transfer. Jason will

be entitled to the staff discount on purchasing cryptocurrency from Blockchain. As an

employee of Service Co., Jason receives accommodation and other fringe benefits from Service

Co.

Required:

Regarding the arrangement proposed by Jason, evaluate and comment whether s.9A of the

Inland Revenue Ordinance is applicable to the relationship between Blockchain and Jason, and

the consequences if this section is applicable.

(Total for Question 3: 13 marks)