Tax Planning and Management

Dragon Overseas Limited is a company incorporated in the British Virgin Islands (BVI) under the International Companies Act 1981-82. Mr A and Ms B were directors and office holders of Dragon Overseas Limited, and at all material times, Dragon (HK) Limited was the ultimate holding company of Dragon Overseas Limited. Dragon Overseas Limited used the registered office of Dragon (HK) Limited as its correspondence address.

Dragon Overseas Limited's minutes books were kept in BVI in accordance with the local Companies Ordinance requirements. Dragon Overseas Limited also engaged the services of a BVI company to handle its books of accounts and to prepare its business books and financial statements at an annual service fee of $50,000. Dragon Overseas Limited's accounting records were kept in Hong Kong, and its accounts were audited in Hong Kong.

On 1 April 2017, Dragon Overseas Limited granted Dragon (HK) Limited the right to use the "Dragon" trademarks in return for royalties calculated at 5% of the gross revenue derived from use of the trademarks. The agreement was signed by Mr A for Dragon (HK) Limited and Ms B for Dragon Overseas Limited.

Under Clauses 4, 5 and 7 of this license agreement, Dragon Overseas Limited was entitled to:

(i) request the licensee to supply random samples of the licensed products;

(ii) visit the licensee's premises to inspect the licensed products;

(iii) inspect and verify the records of manufacture and sales of the licensed products.

Dragon Overseas Limited did not register the trademarks in BVI. These trademarks were registered and renewed with the Hong Kong Intellectual Property Department by a firm of solicitors in Hong Kong. Dragon Overseas Limited also registered some of its trademarks in USA, UK, Australia and France. Applications for registration of the trademarks were made by agents in those countries upon instructions by the firms of solicitors in Hong Kong.

Based on the gross amount of sales revenue derived by Dragon (HK) Limited for the years ended 31 March 2018, 2019, 2020 and 2021, invoices have been raised by Dragon Overseas Limited respectively. Royalty payments have been settled by telegraphic transfer to Dragon Overseas Limited's bank account maintained with Bank S, Singapore Branch: $2,000,000 on 10 June 2017 and $250,000 on 30 September 2021.

The assessor has issued notices of profits tax assessment to Dragon Overseas Limited for the years of assessment 2017/18 to 2020/21 as follows:

Year of Assessment	Sales revenue derived by Dragon (HK) Limited	Royalties payable to Dragon Overseas Limited	Tax payable
2017/18	$10,000,000	$500,000	$82,500
2018/19	$8,000,000	$400,000	$66,000
2019/20	$12,000,000	$600,000	$99,000
2020/21	$15,000,000	$750,000	$123,750
	$45,000,000	$2,250,000	$371,250

Dragon Overseas Limited objected against all profits tax assessments raised in respect of its royalties derived from licensing the use of trademark.

Assume the role of the Board of Review to write a decision on the case.(legal reasoning and clarity of writing)

Each decision must contain the followings:

Brief statement of the relevant facts

Brief statement of the legal and factual issues

Brief statement of the legal principles used to reach the decision.