Hong Kong: Management fees paid to BVI affiliate not deductible (Court of Appeal decision)
Upholding earlier decision of Court of First Instance
The Court of Appeal on October 30, 2025, upheld an earlier decision of the Court of First Instance that management fees paid by a Hong Kong SAR company to its related company in the British Virgin Islands were not deductible.
The court agreed that 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