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Xin Shang Enterprise (XSE) is incorporated and registered in Mainland China and closes its account on 31 March every year. XSEs principal business is the

Xin Shang Enterprise (XSE) is incorporated and registered in Mainland China and closes its account on 31 March every year. XSEs principal business is the sale of own manufactured TV sets. In January 2020, XSE acquired a subsidiary in Hong Kong, namely Moving Fast Limited (MFL). MFL was incorporated in Hong Kong in 2004 and has been engaged in the retailing of electrical appliances for many years. After the acquisition, XSE injected a new business line of trading of TV sets to MFL. For the trading business, XSE accepted all the sales orders and instructed MFL to issue the invoices and arrange the necessary payment and receipts in Hong Kong. The purpose of putting through the trading transactions through MFL was to circumvent the trade restrictions of the countries where customers were located.

The profit and loss account of MFL for the year ended 31 March 2021 showed the following information:

Profit from retailing business HK$2,500,000
Profit from trading business $3,000,000
Interest income from a deposit with ABC Bank 100,000
Legal and professional expenses 1,200,000
Interest expense 400,000
Contribution to MPF 500,000
Business tax (PRC) 50,000

The interest expense of HK$400,000 incurred by MFL was for a loan of $5,000,000 raised during the year of assessment 2020/2021 from ABC Bank, which is registered and operating in Hong Kong. The loan was a ten-year loan for financing MFL's acquisition of a computer system from XSE. It was secured by MFL's deposit of HK$5,000,000 with ABC Bank's head office at Beijing. Interest income of HK$150,000 were derived from the deposit.

Question:

State the profits tax issues in relation to the interest expense, interest income and cost of the computer system.

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