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Li & Fung Ruling Upheld in Tax Case

Chinese company does not have to pay Hong Kong taxes on profits earned offshore.

Hong Kong-based Li & Fung Ltd. said Monday that a Court of Appeal has ruled in favor of its subsidiary Li & Fung (Trading) Ltd. in upholding a judgment by a lower court in connection with offshore income.

This story first appeared in the March 20, 2012 issue of WWD.  Subscribe Today.

Li & Fung contracted work with its overseas affiliated firms for services for customers outside of Hong Kong. Although the supplier and customer were both located overseas, the commission was paid to the Hong Kong-based firm.

Hong Kong Inland Revenue assessed additional tax liability to the commissions received by Li & Fung. Hong Kong taxes income originating within the city. Li & Fung disputed the assessment since the commissions originated overseas.

According to Li & Fung’s interim report, Hong Kong Inland Revenue assessed $247 million for the offshore income and for the deduction of marketing expenses for the years of assessment from 1992-93 to 2009-10.

In April 2011, the Court of First Instance determined that buying agency commissions were not taxable when earned from services outside of Hong Kong through overseas affiliated firms. Hong Kong Inland Revenue filed an appeal.

“We are very pleased that the Court of Appeal has upheld the judgment of the Court of First Instance and confirmed that we should not pay Hong Kong tax on profits earned offshore,” said William K. Fung, executive deputy chairman of Li & Fung Ltd.