Question 5 (10 marks) Quality Ltd, a US soap manufacturing corporation, plans to export its products (manufactured in the US) to Hong Kong. It plans to establish a subsidiary company (Fresh Ltd) in Hong Kong, which will operate retail shops in Hong Kong. Fresh Ltd will purchase the products from Quality Ltd and sell them to Hong Kong customers. The purchase contracts will be determined and concluded in US. Required: Advise Quality Ltd on the Hong Kong profits tax implications of its plan. Consider the tax positions of Quality Ltd and Fresh Ltd independently. For each company, consider: Is it carrying on business in Hong Kong?

Does it earn Hong Kong sourced profits? Disregard re-invoicing and any overseas tax implications. [Total for Question 5: 10 marks]