Hong Kong: Management fees paid to BVI affiliate not deductible

Court of First Instance decision

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October 29, 2024

The Court of First Instance on September 30, 2024, held that the management fees paid by a Hong Kong SAR company to its related company in the British Virgin Islands were not deductible.

The portion of the management fees paid in accordance with the contractual terms of a management agreement was held non-deductible under the general anti-avoidance rule (i.e., section 61A of the Inland Revenue Ordinance (IRO)) because the court found that the transaction was carried out for the sole or dominant purpose of obtaining a tax benefit, and the portion paid in excess of what was contractually agreed was held non-deductible under the general expense deduction rule (i.e., section 16(1) of the IRO).

The case is: Chapman Development Limited v. Commissioner of Inland Revenue.
 

For more information contact a KPMG tax professional:

David Ling | davidxling@kpmg.com

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