Hong Kong: Management fees paid to BVI affiliate not deductible
Court of First Instance decision
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