An individual was employed by Company B in Hong Kong. During a restructure of the company, his roles were split intotwo employment contracts with Company C (in Hong Kong) and with Subsidiary F (in City G).
The Board of Review was asked to consider whether the two employments should be regarded as a single employment, and, if not, whether any of the services for Subsidiary F were rendered in Hong Kong and subject to Hong Kong tax. The Board was also asked to consider whether the arrangement was artificial, fictitious, or had the sole or dominant purpose of tax avoidance.
The Board held the two employments to be separate – one was a Hong Kong-located employment and the other was not in Hong Kong. It also held that the arrangement was “commercial and was motivated by realistic business considerations, so much so that a well-informed bystander would not say that ‘that would not happen in the real world.’”
In addressing the question of apportionment, the Board was of the view that the employments were sufficiently interwoven that it was “quite implausible” that a C-level executive spending the majority of time in Hong Kong would not “address his mind to [Subsidiary F] business during the entirety of any stay in Hong Kong.”
Therefore, in the absence of contractual allocation, apportionment needed to be considered. The Board stated that apportionment is a matter of “impression” and used a methodology based on time spent in Hong Kong. Although acknowledging the days-in days-out (DIDO) approach preferred by the Inland Revenue Department, the Board favoured an approach that excluded non-work-days and recognised that only part of each day would have been dedicated to rendering services to Subsidiary F. In doing so, income from employment with Subsidiary F attributed to Hong Kong was less than it would have been under the DIDO method.