HK-TVB INTERNATIONAL LTD v. COMMISSIONER OF INLAND REVENUE

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JUDGMENT

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Kempster, JA:

1. This is the judgment of the court on an appeal from a judgment of Godfrey J given on 9th April 1990 in favour of the Commissioner of Inland Revenue ("The Commissioner") on his appeal, by way of Case Stated, from the determination of the Board of Review that HK-TVB International Ltd ("the taxpayers") were not liable to profits tax assessed for the years 1980-81 to 1983-84 pursuant to section 14 of the Inland Revenue Ordinance (Cap 112)

2. At the outset it will be appropriate to set out the terms of section 14:

As the learned judge pointed out, by section 2 "profits arising in or derived from Hong Kong" include "all profits from business transacted in Hong Kong". The Board of Review found that the taxpayers' relevant profits did not arise in or derive from Hong Kong. The learned judge, reading the words of the section as if they read "carrying on a trade, business or profession from Hong Kong" found that they did.

3. It appears from the facts found by the Board and recited in the Case that the taxpayers, by reason of licences granted to them in consideration of the obligation to pay fees, were exclusively entitled to exploit, outside Hong Kong, the copyrights owned by Television Broadcasts Ltd, also outside Hong Kong, in certain films. It follows and is common ground that sections 19 and 49(5) of the Copyright Act 1956, which has been extended to Hong Kong and, in the absence of evidence to the contrary, is presumed to apply elsewhere, gave the taxpayers the right to enforce the owners' foreign rights. It is equally apparent and common ground that they carried on business, incurred administrative expenses as marketing agents, provided facilities, despatcned tapes from and made the significant decisions in the Colony, where they were incorporated, and that the profits in question derived from that business. To further that business their salesmen travelled abroad to promote, negotiate and on occasion complete agreements for the sale or sub-licensing of rights in the films to be exercised overseas. Some of these agreements were concluded by acceptance instantaneously received in Hong Kong and others, where such means were contemplated, by the posting of acceptance overseas. Brinkiborn Ltd v. Stahag Stahl (1983) 2 AC 34; Byrne v. Van Tienhoven (1880) 5 CPD 344. One at least was concluded at a press conference in Taiwan. However, to attach any significance to the place where one or other agreement was concluded, being quite fortuitous, would not, in our opinion, form a workable or sensible basis for determining the questions arising in this appeal and, as Schreiner JA said in Commissioner for Inland Revenue v. Lever Bros(1946)14 SATC1 at p. 17:

4. Since the delivery of the judgment under appeal, which was canvassed in argument before them, the Privy Council has had occasion to consider the application of section 14 to profits deriving from the purchase and sale overseas of financial instruments by a Hong Kong bank Commissioner of Inland Revenue v. Hang Seng Bank Ltd (1990) 3 WLR 1120. The critical question there arising, as in the instant case, was whether or not the profits arose in or derived from Hong Kong. The Privy Council advised that they did not and that, accordingly, profits tax was not payable. At pp. 1124 and 1125 Lord Bridge said:

Having explained the effect of Inland Revenue Rule 2A(1) in calculating assessable profits when income derives both from Hong Kong and from elsewhere Lord Bridge went on, at pp. 1128 and 1129, to reject the submission that profits should be regarded as arising in or derived from Hong Kong because:

and to outline:

"If" he explained,

5. The taxpayer here has carried on marketing activities outside Hong Kong resulting in agreements for the sale or sub-licensing of intellectual property rights also exercisable only outside the Colony. The consideration is paid because the purchasers and sub-licensees are entitled to exercise these rights. Essentially the profit making activity was carried on and the services, being the provision of the rights, were rendered outside Hong Kong. Alternatively, the profit was earned by the exploitation of property assets and arose or was derived from the places where those assets were when sold or licensed and remain; all outside Hong Kong. English, Scottish and Australian Bank Ltd v. Inland Revenue Cmr (1932) AC 238. To suggest, as did Mr. Feenstra for the Commissioner, that the charges made by the taxpayer for incidental facilities afforded, not the subject of any analysis to date, should be the subject of a separate assessment cannot reasonably be entertained.

6. When considered in the light of the principles established by the Privy Council the decision of the Board of Review was fully justified by the primary facts, betrayed no error of law and should be affirmed. We allow this appeal and make an order nisi for costs in the taxpayers' favour here and before Godfrey J.