TOUAX CONTAINER INVESTMENT LTD v. THE COMMISSIONER OF INLAND REVENUE

HCIA 1/2023

[2024] HKCFI 2242

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 1 OF 2023

______________

______________

______________

J U D G M E N T

______________

A.  INTRODUCTION

1.  The Appellant (“the Taxpayer”) seeks to appeal against the Decision of 3^rd January 2023 (“the Decision”) of the Inland Revenue Board of Review (“the Board”), whereby the Board dismissed the Taxpayer’s appeal against the assessments and additional assessments to profits tax for the six years of assessment from 2008/09 to 2013/14 as set out in the determination of 14^th October 2019 by the Deputy Commissioner of Inland Revenue (“the Determination”).

B.  THE FACTUAL BACKGROUND

2.  I gratefully adopt the following factual background from the Decision and the Determination.

B1.  Background

3.  On 21^st October 2008, the Taxpayer was incorporated in Hong Kong. In its directors’ reports, the Taxpayer described its principal activities as being the sale and leasing of shipping containers. In the notes to its financial statements, it declared a Hong Kong address as its registered office and principal place of business (“the HK Address”).

4.  At the relevant times, the Taxpayer’s directors were Mr F Walewski, Mr R Walewski, Mr Ponak, Mr Kesteloot (who resigned on 20^th December 2010) and Mr Ong (who was appointed on 8^th February 2011).

5.  The Taxpayer regarded Touax SCA and Touax Container Services SAS (“TCS”) as its ultimate holding company and immediate holding company respectively. Both were incorporated in France. Touax SCA was a limited partnership, and its managing partners were Mr F Walewski and Mr R Walewski.

6.  Other members of the group of companies of which the Taxpayer formed part (“the Group”) included:

6.1  Gold Container Corporation (“GCC”), which was incorporated in Delaware, USA, which was involved in the trading, leasing and financing of shipping containers. On 8^th May 2001, GCC registered a branch in Hong Kong as a non-Hong Kong company (“GCC HK Branch”). At one point in time, GCC HK Branch maintained an office in Kowloon. It was said to be engaged in the provision of liaison and administrative services. Mr Ponak and Mr Kesteloot were also directors of GCC HK Branch.

6.2  Touax Container Leasing Pte Ltd (“TCL”), which was incorporated as a limited liability company in Singapore. Mr Ong was a director of TCL;

6.3  Gold Container Finance LLC (“GC Finance”), which was incorporated in Delaware;

6.4  Touax Container Financing Pte Ltd (“Touax Finance”), which was incorporated as a limited liability company in Singapore.

7.  At all relevant times, the Walewskis were the common directors of all the aforesaid companies in the Group. The companies were all under the control of Touax SCA and TCS.

B2.  Assertions made by the Taxpayer’s tax representatives

8.  The Taxpayer’s tax representative Messrs KPMG (“KPMG”) made a number of statements to the Assessor of the Inland Revenue Department.

9.  In response to queries regarding the background of the Group and the establishment of the Taxpayer, KPMG stated the following.

9.1  The Group was engaged in the business of operational leasing of shipping containers. The Group’s shipping container leasing business was previously operated by GCC. The Group undertook a reorganisation of its shipping container leasing business by establishing TCL in Singapore in 2007 and the Taxpayer in Hong Kong in 2008.

9.2  After the reorganisation, the Taxpayer became the trading arm of the Group and TCL became its leasing arm. GCC transferred its entire trading business in Asia to the Taxpayer, and most of its leasing business in Asia to TCL. GCC continued to handle the leasing business and sale of shipping containers of the Group in the US, Korea and Japan.

9.3  The Taxpayer leased the shipping containers to TCL, which then subleased to lessees. TCL also acted as the manager for the leased shipping containers, responsible for managing the lease, repair and maintenance of shipping containers on behalf of the Taxpayer.

9.4  The Group chose to establish the Taxpayer in Hong Kong because: (a) suppliers in mainland China and customers in Asia, such as Malaysia and Japan, preferred carrying on business with an entity in Hong Kong, to which they were geographically closer, than a US entity; (b) the incorporation of the Taxpayer in Hong Kong increased its credibility with its customers and suppliers, as Hong Kong had a robust legal system, and an independent judiciary that provided a fair and just operating environment for businesses, in addition to highly cost-effective arbitration services; (c) it was easier to set up a company in Hong Kong than in mainland China; and (d) in addition, due to foreign exchange control in mainland China, setting up the Taxpayer in Hong Kong would give it greater flexibility in doing business.

10.  In response to queries regarding the Taxpayer’s operations, KPMG stated the following.

10.1  The Taxpayer maintained a registered office at the HK Address, which was actually the office of the Taxpayer’s company secretary.

10.2  The Taxpayer did not employ any employees or engage any agents in Hong Kong to act for or on its behalf in any capacity.

10.3  The Taxpayer did not have any other establishment outside Hong Kong, nor had it obtained any foreign business / tax registration certificate.

10.4  The trading of shipping containers was undertaken by Mr Ponak and Mr Kesteloot outside Hong Kong. Mr Ponak and Mr Kesteloot did not carry out any profit-generating activities for the Taxpayer in Hong Kong.

10.5  TCS provided administrative, human resources, IT, treasury and accounting, financial, technical and marketing services to the Taxpayer outside Hong Kong. In return, the Taxpayer paid TCS management fees according to a services agreement dated 3^rd April 2009 made between TCS, GSS, TCL and the Taxpayer. The services agreement was signed on 1^st January 2009 with retrospective effect by Mr Fabrice Walewski on behalf of all the parties.

10.6  The Taxpayer maintained a bank account with Credit Lyonnais Bank in France. Mr Walewski and Mr Raphael Walewski were the authorised signatories. The Taxpayer did not have any bank accounts in Hong Kong.

10.7  The Taxpayer had not paid any tax outside Hong Kong.

10.8  The Taxpayer’s mode of operations for the relevant years of assessment was substantially the same.

11.  KPMG made the following further contentions regarding the purchase of shipping containers.

11.1  The initiation, negotiation and conclusion of the Taxpayer’s sales contracts with investors and buyers were carried out by Mr Ponak in the US, by emails, by telephone and by visits to the customers’ locations. Mr Ponak had the ultimate authority to accept sales orders from the customers for and on behalf of the Taxpayer.

11.2  No formal sales contracts were prepared in relation to the sales of the Taxpayer’s shipping containers. The staff of TCS in France prepared invoices for the Taxpayer together with certificates of ownership of the shipping containers. The customers settled their accounts via wire transfer.

12.  KPMG made the following further contentions regarding the leasing of shipping containers.

12.1  Shipping containers would not be tradeable if they were not being leased. After purchasing the shipping containers, the Taxpayer first leased them to TCL, which then sub-leased to lessees outside Hong Kong.

12.2  The Taxpayer entered into a Marine Shipping Container Variable Lease (“the Lease Agreement”) with TCL dated 1^st July 2009 with retrospective effect from 1^st November 2008. The Lease Agreement was negotiated and executed by Mr Ponak on behalf of the Taxpayer in the US, and by Mr Kesteloot on behalf of TCL in Singapore.

12.3  TCL managed the shipping containers owned by the Taxpayer under the Lease Agreement. The Taxpayer did not intervene in the leasing business of TCL. TCL generated leasing income by sub-leasing the shipping containers. TCL distributed to the Taxpayer 94.5% of the leasing income net of operating expenses incurred, and retained 5.5% in its accounts as commission.

12.4  The Taxpayer only derived leasing income from TCL.

13.  KPMG made the following further contentions regarding the operations of GCC HK Branch.

13.1  GCC HK Branch was established in 2001 to provide liaison and administrative services to GCC in return for a service fee income. It was not involved in initiation, negotiation and conclusion of shipping container leasing contracts on behalf of GCC or the Taxpayer.

13.2  After the transfer of business of GCC to TCL and the Taxpayer in 2007, GCC HK Branch ceased to provide services to GCC, and started to provide similar liaison and administrative services to TCL in handling its leasing business in Asia.

13.3  Staff members of GCC HK Branch were:

13.3.1  Ms Seto, who was the Group’s North East Asia Operations Supervisor. Her duties included providing depot management services; and obtaining booking confirmations and arranging with lessees for pick-up of shipping containers.

13.3.2  Ms Lai, who was the Group’s North East Asia Area Commercial and Marketing Director. Her duties included conducting market studies, strengthening relationships with existing customers and developing new customers’ base, monitoring stocks of shipping containers under leased and pending resale, and monitoring invoicing process and account receivables.

13.3.3  Mr Penas, who was the Group’s Director of International Operations, was responsible for technical aspects of the shipping containers. His duties included maintaining good relationships with suppliers, managing inventory levels and records, designing and implementing procedures for repair standards and warranties, and leading and managing projects and staff.

14.  For the year of assessment of 2013/14, the Taxpayer filed an employer’s return for Ms Seto, Ms Lai and Mr Penas, notwithstanding that they were supposed to be staff of GCC HK Branch. By a letter dated 1^st May 2016, the Taxpayer informed the Assessor that it in fact had no employees working for its business for the year of assessment 2013/14, but that the Group’s Human Resources Department in France had wrongly treated Ms Seto, Ms Lai and Mr Penas as its employees, because they had inadvertently overlooked the existence of HK Branch. Further, Mr Penas’ pay slips were also found to be wrongly issued in the Taxpayer’s name up to July 2014.

15.  KPMG provided the Assessor with documents for two representative trading transactions (“Transaction 1” and “Transaction 2”). They included:

(for Transaction 1)

15.1  a proforma invoice from the Taxpayer at the HK Address to a customer P&R;

15.2  an asset purchase agreement between the Taxpayer at the HK Address as buyer, and third parties as sellers, for the Taxpayer’s purchase of shipping containers. The agreement stipulated that any notices to the Taxpayer had to be served at the HK Address. The agreement was signed by Mr Kesteloot on behalf of the Taxpayer;

15.3  a letter from the Taxpayer at the HK Address to the sellers enclosing bank transfer advice slips showing payment made by the Taxpayer pursuant to the asset purchase agreement;

(for Transaction 2)

15.4  a purchase contract between the Taxpayer at the HK Address as buyer and one Shanghai Baoshan Pacific Container Co and another as seller. The contract stipulated that the commercial invoice should be addressed to the Taxpayer at the HK Address;

15.5  a final order confirmation from the Taxpayer at the HK Address to one Singamas for the purchase of shipping containers;

15.6  an invoice from Shanghai Baoshan Pacific Container Co Ltd to the Taxpayer at the HK Address for the sale of shipping containers;

15.7  a final order confirmation from the Taxpayer at the HK Address to one CXIC for the purchase of shipping containers;

15.8  a bank statement showing payment by the Taxpayer to one Singamas Management Services;

15.9  an invoice from a subsidiary of CXIC to the Taxpayer regarding the sale of shipping containers;

15.10  two certificates of inspection showing the Taxpayer at the HK Address as the owner of certain shipping containers;

15.11  a container sale and purchase agreement between the Taxpayer at the HK Address and one Evergreen as seller;

15.12  an invoice from Evergreen to the Taxpayer at the HK Address for the sale of shipping containers;

15.13  bank statements showing debits from the Taxpayer’s account of the amounts under the invoices from CXIC subsidiary’s and Evergreen;

15.14  a formal contract between the Taxpayer at the HK Address as seller and its customer P&R whereby P&R agreed to purchase shipping containers;

15.15  an invoice from the Taxpayer at the HK Address to P&R for the sale of shipping containers;

15.16  a bank statement showing the amount invoiced to P&R was deposited into the Taxpayer’s account.

B3.  The Board’s Decision

16.  The Board was satisfied that the Taxpayer carried on a business in Hong Kong.

17.  The Board rejected the Taxpayer’s case that it did nothing in Hong Kong to earn its profits. In relation to the leasing income, it additionally was not satisfied that the Taxpayer had sufficiently proven that the Lease Agreement was not made in Hong Kong.

18.  The Board therefore held that the Taxpayer had not discharged its burden of proving that the assessments appealed against were excessive or incorrect.

B4.  The grounds of appeal

19.  The grounds on which the Taxpayer seeks to appeal are as follows.

“Ground 1: Whether the Board erred in concluding that the [Taxpayer] carried on a trade or business in Hong Kong within the meaning of s.14 by virtue of: (1) the designation of a Hong Kong address in the commercial documentation of the [Taxpayer], being the [Taxpayer]’s registered address (which was the address of its company secretary) that it was required to have under the Companies Ordinance; (2) invoices being “deemed” to have been received or issued at that address by virtue of being marked with that address; and (3) specifically as regards the year of assessment 2013/14, the presence of three individuals in Hong Kong, whom the [Taxpayer] reported in its employer’s return were its employees.

Ground 2: Whether the Board erred in applying the affirmed and complementary ‘hard practical matter of fact’ and ‘operations test’ approaches to ascertaining the locality of profits for the purposes of s.14 of the IRO as set out by the Privy Council in, respectively, CIR v Hang Seng Bank [1991] 1 AC 306, at 322-323, and CIR v HKTVB International Ltd [1992] 2 HKLR 191, at 196, in concluding that the proximate source of the [Taxpayer]’s profits from its container trading and container leasing activities were operations conducted in Hong Kong from the presence of the HK Branch Employees, which it held to be a relevant consideration in all years of assessment in the Relevant Period.

Ground 3: Specifically as regards the [Taxpayer]’s leasing trade, whether the Board erred: (1) in failing to distinguish for the purposes of s.14 between the operations giving rise to the [Taxpayer]’s container trading profits and container leasing profits; and (2) in concluding that the container leasing profits were sourced in Hong Kong, in particular by virtue of Mr Ponak failing, in the Board’s view, expressly to state that he did not sign the Lease Agreement outside Hong Kong, where it was not disputed that no containers were ever leased in Hong Kong, or to any person resident in Hong Kong.

Ground 4: Specifically as regards the HK Branch Employees, whether the Board erred in: (1) concluding that the services they rendered in Hong Kong to the [Taxpayer] (if any) amounted to the conduct of a trade or business in Hong Kong by the [Taxpayer] within the meaning of s.14; and (2) that such services were the proximate source of the [Taxpayer]’s profits in the Relevant Period or any part of it, such that the profits of the [Taxpayer] could be said to arise or be derived from Hong Kong within the meaning of s.14.”

C.  SOME RELEVANT LEGAL PRINCIPLES

C1.  Appeals against a decision of the Board of Review

20.  The ways in which a decision of the Board may be challenged are limited, as explained in CIR v Inland Revenue Board of Review [1989] 2 HKLR 40 at 56F-H, 57F-H (Barnett J).

20.1  The decision may be challenged for misdirection in law.

20.2  An inference or the final conclusion of the Board may be attacked on the basis that the primary facts do not admit of an inference drawn from them, or that the primary facts or inferences, or a combination of them, do not admit of the final conclusion. Where the facts can reasonably admit of the Board’s conclusion, however, its decision should not be disturbed.

20.3  A finding of primary fact may be challenged on the basis that there was no evidence in support of the finding. Alternatively, it may be contended that the Board should have made findings of other relevant facts.

21.  The second and third of these relate to challenges to findings of fact. As further explained in Kwong Mile Services Ltd v Commissioner of Inland Revenue (2004) 7 HKCFAR 275 at [31] to [34] (Bokhary PJ), findings of fact can be challenged as errors of law only where:

21.1  the decision was based on a finding of fact or inference from the facts which is perverse or irrational;

21.2  there was no evidence to support the finding;

21.3  the decision was made by reference to irrelevant factors or without regard to relevant factors such that the conclusion is contrary to the true and only reasonable one.

22.  A court will be reluctant to interfere with the conclusion or inference of the fact-finding tribunal because judges and tribunals can reasonably differ as to what side of the line any particular case falls: Heath Brian Zarin v The Commissioner of Inland Revenue [2022] HKCA 412 at [33] (Kwan VP).

23.  Attacks on findings of fact only raise questions of law in very limited circumstances. It should be borne in mind that:

23.1  the extent to which a particular piece of evidence should be accepted or rejected, and the weight to be given to it, are matters for the Board and not the court;

23.2  it is all too easy for a so-called question of law to become no more than a disguised attack on findings of fact which must be accepted by the courts, and all too easy for the appeals procedure to the court to be misused in this way;

23.3  the nature of the factual enquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact.

See Commissioner of Inland Revenue v Right Margin Ltd [2017] 5 HKLRD 398 at [10] (G Lam J, as he then was).

C2.  The charge to profits tax

24.  Section 14(1) of the Inland Revenue Ordinance (“IRO”) provides that:

“…profits tax shall be charged for each year of assessment on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part.”

25.  Accordingly, three conditions have to be satisfied before a charge to tax arises under s.14:

25.1  the taxpayer must carry on a trade, profession or business in Hong Kong;

25.2  the profits to be charged must be “from such trade, profession or business”, which means from the trade, profession or business carried on by the taxpayer in Hong Kong; and

25.3  the profits must be “profits arising in or derived from” Hong Kong.

See CIR v Hang Seng Bank Ltd [1991] 1 AC 306 at 318E-F (Lord Bridge).

D.  GROUND 1: WHETHER BOARD ERRED IN CONCLUDING THAT THE TAXPAYER CARRIED ON TRADE OR BUSINESS IN HONG KONG

26.  Ground 1 is concerned with the first condition under s.14 IRO.[1]

D1.  The Board’s findings

27.  The Board found that although the documentary evidence of the Taxpayer’s activities in Hong Kong might be minimal, some repeated activities in the pursuit of commercial gain were carried on, given that:

27.1  the Taxpayer had declared the HK Address as its registered office and principal place of business. TCS’ invoices for management fees were issued to the Taxpayer at the HK Address, which meant that the invoices had been deemed to have been received by the Taxpayer at the HK Address, given that it was not the case that the Taxpayer had not been properly notified about its liabilities to TCS;

27.2  the Taxpayer had issued invoices to a customer using the HK Address;

27.3  in the representative Transaction 1, the Asset Purchase Agreement entered into between the Taxpayer of the Hong Kong Address and a seller stipulated that any notices sent to the Taxpayer had to be served at the HK Address;

27.4  purchase contracts made with suppliers also stipulated that any notice or invoice to the Taxpayer had to be served at the HK Address;

27.5  the documents relating to the Taxpayer’s trading transactions (such as order confirmations, proforma invoices, portfolio requests and invoices issued by the Taxpayer) all bore the HK Address;

27.6  invoices from suppliers, certificates of inspection, and sale and purchase agreements with suppliers were sent to the Taxpayer at the HK Address. The Taxpayer had apparently sent a letter to its supplier from the HK Address advising the settlement of the purchases;

27.7  invoices for management fees from Group companies were also issued to the HK Address.

28.  Given the parties’ common ground that only a low threshold was required to satisfy the requirements of carrying on business, the Board had no doubt that the Taxpayer did carry on a business in Hong Kong.

D2.  The Taxpayer’s case

29.  The Taxpayer’s arguments at the hearing were threefold. It says that:

29.1  the HK Address was merely “brass plate”. If the Taxpayer had no employees or business assets in Hong Kong, it could not be said to have been carrying on business in Hong Kong;

29.2  the fact that the Taxpayer was required to have a registered address in Hong Kong did not mean that it actually carried on business in Hong Kong. Even the Board referred only to “deemed” receipt of invoices rather than actual receipt or actual operations in Hong Kong. The Taxpayer’s profit-making activities were carried on by its directors (Mr Ponak, Mr F Walewski, Mr R Walewski, Mr Kesteloot, Mr Ong and Mr Poggio) who worked and lived outside Hong Kong;

29.3  the Board groundlessly disbelieved Mr Poggio’s evidence seeking to explain away why the Taxpayer had employed Ms Seto, Ms Lai and Mr Penas in 2013/14.

D3.  Analysis

30.  I will deal with the first two points together. The Taxpayer does not challenge the findings made by the Board as regards the documentary evidence that the Taxpayer carried on business in Hong Kong (as summarised above). However, it says that such matters do not amount to the carrying on of business, in the absence of employees and business assets in Hong Kong. It says that as a matter of law, a trade or business could not be conducted passively, and that it had to be carried on in a systematic way, with positive acts; a taxpayer could only be taxed on what it did, rather than what it was. It says that the actual profit-making operations of the Taxpayer were conducted outside Hong Kong by its directors.

31.  I would first of all note that the Taxpayer’s argument proceeds on a misdescription of the Board’s findings. Mr Stefano Mariani, solicitor-advocate for the Taxpayer, submitted that[2] “the Board appeared to accept that [the Taxpayer] had no employees or substantive business assets in Hong Kong”. However, the paragraph of the Decision referred to was one in which the Board set out the Taxpayer’s own claims, rather than the Board’s own findings. (In fact, it should be apparent that the Board did not accept that the Taxpayer had no employees in Hong Kong, since it (1) referred to the facts that the Taxpayer (a) signed a contract of employment with Ms Seto and (b) filed employer’s returns for Ms Seto, Ms Lai and Mr Penas for 2013/14, (2) rejected the Taxpayer’s claim that the contract of employment and the employers’ returns were innocent mistakes, and (3) took the view that the Taxpayer regretted the engagement of employees in its own right to conduct its business (as was done in 2013/14) and therefore thereafter reverted to its original mode of conducting business which was to borrow GCC HK Branch’s employees[3] (Decision at [12.2], [12.4], [12.5], [12.11], [12.12]).)

32.  Furthermore, whilst Mr Mariani submitted that the contemporaneous documents for the solicitation, negotiation and conclusion of the trading and leasing transactions were drafted, sent and/or received by the Taxpayer’s directors outside Hong Kong,[4] this was not the Board’s finding. Counsel for the Commissioner, Mr Ernest Ng, pointed out that whilst there might have been some documents drafted, sent or received outside Hong Kong, there was in fact no evidence before the Board that this was the case for all relevant documents.

33.  Accordingly, Mr Mariani’s submission cannot succeed on the basis advanced.

34.  Leaving that aside, the point in any event is that although there may not have been much documentary evidence as to the Taxpayer’s activities in Hong Kong, it was open to the Board to rely on such documentary evidence as there was to make a finding that the Taxpayer carried on business in Hong Kong. It is not for the court to re-weigh that evidence and to come to a different conclusion. It cannot be said that the only reasonable conclusion[5] to which the Board could have come was that no business was being carried on. The HK Address was not merely “brass plate”: it was declared by the Taxpayer to be its principal place of business; it was the Taxpayer’s registered address; it was the address consistently and repeatedly used in the Taxpayer’s trading transactions, in the Taxpayer’s dealings with suppliers and customers – invoices were issued by the Taxpayer from that address; invoices were issued to the Taxpayer at that address by both Group companies and third parties; the Taxpayer entered into agreements using that address; it was the Taxpayer’s address for service; various other transactional documents were issued by and to the Taxpayer at that adddress.

35.  Mr Mariani cited Maclaine And Company v Eccott [1926] AC 424 at 432 and Grainger & Son v William Lane Gough [1896] AC 325 at 335 for the proposition that where a taxpayer carries on the trade of buying and selling goods, the place where it carries on the trade will normally be the place where the contracts for sale and purchase are made. First, it was not the Board’s findings that the contracts for sale and purchase of containers were made outside Hong Kong. (There was a lack of findings in this regard, as dealt with below.) Second, both authorities also note that in any particular case, where a business is conducted depends on the facts and circumstances of that particular case. Thus the two authorities do not take the matter any further. In any event, Ground 1 is not concerned with the issue of whether the Taxpayer’s profits from trading and leasing containers arose from the business carried on in Hong Kong. It is only concerned with whether the Taxpayer carried on a trade or business in Hong Kong. As Mr Mariani acknowledged (both on this appeal and before the Board[6]), not much activity is necessary to constitute the carrying on of business. In American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue [1979] AC 676 at 684C, the Privy Council said that:

“…in the case of a company incorporated for the purpose of making proifts for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business…

The carrying on of “business”, no doubt, usually calls for some activity on the part of whoever carries it on, though, depending on the nature of the business, the activity may be intermittent with long intervals of quiescence in between.”

36.  Mr Mariani submitted that Newfair Holdings Limited v Commissioner of Inland Revenue [2022] HKCFI 1133 established a principle that having a registered address in Hong Kong as a formality of corporate law was insufficient to constitute the conduct of a trade or business in Hong Kong. I do not agree; the decision turned on the particular facts of the case (see [40]).

37.  Mr Mariani also submitted that as regards the Taxpayer’s declaration in its audited financial statements throughout the years (from 2008 to 2015) that its principal place of business was in Hong Kong, there was a letter from its tax representative (then Messrs Deloitte) of 27^th April 2020 that this appeared to it to be an oversight. However, this was simply ex post facto speculation on the part of Messrs Deloitte. It is not for the court to re-weigh the evidence by giving overriding weight to this letter and ignoring the other documentary evidence relied on by the Board as identified above.

38.  On the third point, as regards the Board’s rejection of Mr Poggio’s evidence, I would first of all note that this did not in fact play a part in the Board’s findings on the issue of whether the Taxpayer carried on business in Hong Kong: see Decision at [10], particularly at [10.3] where the Board expressly indicated that its holding on this issue did not need to be based on what the Taxpayer (claimed that it) wrongly did in Hong Kong (ie. employing Ms Seto and filing employer’s returns for three employees in Hong Kong). Strictly speaking, therefore, the point does not arise for consideration.

39.  It is true that in the context of discussing the separate issue of the source of the Taxpayer’s profits, the Board observed (Decision [12.2]) that the Commissioner had made a valid point in paragraph 3(7)(e) of the Determination that it was doubtful that the Taxpayer had no staff in Hong Kong and therefore no operations in Hong Kong (given that, inter alia, staff costs were charged to the Taxpayer throughout the years in question, employer’s returns were filed for Ms Seto, Ms Lai and Mr Penas for 2013/14, and Mr Penas was paid by the Taxpayer). The Board also noted that there was a Rectification Agreement which suggested that the Taxpayer had misunderstood its role in Hong Kong, which implied that it did in fact play a role in Hong Kong. Again, this was in the context of considering the separate issue of source. The Board’s observation was that this undermined the Taxpayer’s case, and bolstered the Commissioner’s case, as to whether the Taxpayer carried on business in Hong Kong (Decision [12.9]), not that it was part of the reasons for the Board’s decision on this issue, which had already been dealt with in the earlier part of the Decision at [10].

40.  Even if the Board had relied on its rejection of Mr Poggio’s evidence, I do not consider that this could be said to support a complaint that the only true and reasonable conclusion is that the Taxpayer did not carry on business in Hong Kong. Mr Mariani says that the Board did not give any reasons for doubting Mr Poggio’s evidence and only made a bare assertion that his version of events was inherently improbable.[7] It is also said that it was a non sequitur for the Board to reason that the mistaken employer’s return for just one year of 2013/14 meant that the Taxpayer must have conducted business in Hong Kong for all of the six years of assessment under consideration.[8]

41.  Mr Ng takes a further preliminary objection, which is well-founded, that the argument that the Board failed to give reasons does not come within the wording of Ground 1. No question of law based on these arguments has been identified, as required by s.69 IRO. See China Mobile Hong Kong Co Ltd v Commissioner of Inland Revenue [2018] 2 HKLRD 146 at [26] to [29].

42.  In any event, the arguments are without merit. First, the Board did not fail to give reasons. The reasons for rejecting Mr Poggio’s evidence were set out in the Decision at [12.5] to [12.6]. The Board considered that (inter alia):

42.1  the claim of ignorance of foreign employment laws and administrative practices was not a credible explanation, as it would not have led to the making of a deliberate decision to require a foreign employee to cease employment with one employer after twelve years and then commence employment with another employer forthwith (the offer of employment had noted the fact that Ms Seto had a contract with GCC HK Branch since 1^st May 2001);

42.2  the claim of confusion of identities was not a credible explanation, as it could not have been the case that an entire department of the Group in France had wrongly thought, for twelve years, that Ms Seto worked for the Taxpayer;

42.3  it could not be the case that Ms Seto, the Taxpayer and GCC HK Branch had been oblivious to the error of Ms Seto being wrongly employed by the Taxpayer for some 19 months and that it was only another member of staff at another location who spotted this.

43.  The Board heard the witnesses and assessed their oral evidence. These assessments are not something which the court will lightly interfere with. Mr Mariani cited Woo Kwok Ping v The Incorporated Management Committee of Tsuen Wan Trade Association Primary School [2022] HKDC 308 at [36] for the proposition that it is not open to the Board to reject the evidence of a witness who allowed himself to be cross-examined without having serious substantive grounds for doing so.[9] With respect, I do not see that this paragraph (which sets out the principles for assessment of witnesses’ credibility, citing inter alia Hui Cheung Fai v. Daiwa Development Ltd, unreported, HCA 1734/2009, 8^th April 2014) supports this proposition. Insofar as Mr Mariani argued that Mr Poggio’s evidence should not have been rejected because it was consistent with the Rectification Agreement which was a written document, the Board explained in the Decision at [12.9] and [12.11] why the Rectification Agreement in fact supported its view that the Taxpayer carried out business in Hong Kong (it suggested that the Taxpayer had misinterpreted its role in Hong Kong, and it was part of the “u-turn” conducted by the Taxpayer).

44.  Second, it was not the Board’s reasoning that because the Taxpayer mistakenly reported Ms Seto, Ms Lai and Mr Penas as being its employees for one year, the Taxpayer must have carried on business for all six years of assessment. The Board’s finding was that the Taxpayer had previously “borrowed” employees of GCC HK Branch to carry out its business, and then for 2013/14 changed to employing them directly; however, it then changed its mind about the wisdom of this and after nineteen months, resumed its original mode of operations. See Decision at [12.11]. The Board was not suggesting that because the Taxpayer had employed the employees for one year of assessment, it therefore must have conducted business in Hong Kong for six years of assessment.

D4.  Conclusion regarding Ground 1

45.  The Board did not err as alleged under Ground 1.

E.  GROUNDS 2 AND 4: WHETHER BOARD ERRED IN APPLYING THE TEST FOR ASCERTAINING SOURCE OF TAXPAYER’S PROFITS BASED ON PRESENCE OF GCC HK BRANCH EMPLOYEES; WHETHER BOARD ERRED IN CONCLUDING THAT GCC HK BRANCH EMPLOYEES’ SERVICES AMOUNTED TO CONDUCT OF BUSINESS IN HONG KONG AND WERE PROXIMATE SOURCE OF TAXPAYER’S PROFITS

46.  Grounds 2 and 4 are concerned with the third condition under s.14 IRO.

47.  The Taxpayer does not dispute that the Board set out the principles regarding the source of profits in the Decision at [11.1] to [11.9]. The key ones to bear in mind for present purposes are as follows.

47.1  The source of a taxpayer’s profits is a hard, practical matter of fact to be understood not as a legal concept, but something which a practical man would regard as the real source of income (Rhodesia Metals, Limited (in liquidation) v Commission of Taxes [1940] AC 774 at 789).

47.2  It is impossible to lay down precise rules of law as to how to determine the source of a taxpayer’s profits. The broad guiding principle in ascertaining the source of a taxpayer’s profits is that one should find out what the taxpayer has done to earn the profits in question, and where he has done it. If the taxpayer earned profits from trading, the profit will (generally) have arisen in the place where the contracts of sale and purchase were effected (Commissioner of Inland Revenue v Hang Seng Bank Ltd [1991] 1 AC 306 at 322H-323B).

47.3  The focus is on the geographical location of the taxpayer’s profit-producing transactions as distinct from activities antecedent or incidental to those transactions; such antecedent activities will often be commercially essential to the operations and profitability of the taxpayer’s business, but they do not provide the legal test for ascertaining the geographical source of profits for the purposes of s.14 IRO (Kwong Mile Services Ltd v Commissioner of Inland Revenue) (2004) 7 HKCFAR at [12]; ING Baring Securities (Hong Kong) Ltd v Commissioner of Inland Revenue (2007) 10 HKCFAR 417).

E1.  The Board’s findings

48.  The Board made the following findings in relation to the Taxpayer’s container trading and leasing business.

49.  The Board was of the view that the Taxpayer had operations in Hong Kong through Ms Seto, Ms Lai and Mr Penas (“the Three Employees”, termed “the HK Branch Employees” in Ground 4).

50.  There was a Letter of Understanding dated 1^st April 2013 pursuant to which Ms Seto, who previously had been employed by GCC HK Branch, was offered the position of the Taxpayer’s North East Asia Operations Supervisor, with immediate effect.

50.1  Ms Seto was to work at 15/F, 100QRC, 100 Queen’s Road Central (apparently the same address as GCC HK Branch), and to report to Mr Penas.

50.2  The Letter of Understanding signed by a Mr Durand, said to be the Human Resources Director for Touax.

51.  Ms Seto’s original contract of employment with GCC HK Branch was dated 1^st May 2001, and the job description in it included (1) managing container activities in Hong Kong, China and the Far East; (2) coordinating and communicating effectively with factories and depots regarding lease activities, (3) coordinating and working effectively with factories on container production and delivery arrangements. The Board inferred various matters, including that (1) Mr Durand signed it in Hong Kong, (2) the contract was procured in Hong Kong, (3) Ms Seto’s twelve years of employment with GCC HK Branch from 1^st May 2001 to 31^st March 2013 required her to deal with trading and leasing activities of the Group in Hong Kong.

52.  Mr Durand had also (on behalf of the Taxpayer) signed employer’s returns for Ms Seto, Ms Lai and Mr Penas for the year of assessment 2013/14. These were said to have been mistakes.

53.  As regards Ms Lai, there were two “crucial” emails sent to her by Mr Poggio, dated 19^th September 2013 and 14^th December 2014, in which she was entrusted with tasks relating to the trading and leasing of containers, but without reference to TCL. The Board considered this to be prima facie evidence that these tasks were conducted for the Taxpayer in Hong Kong.

E2.  The Taxpayer’s case

54.  At the hearing, the Taxpayer’s arguments were that, inter alia:

54.1  the documentation relating to the representative Transaction 1 and Transaction 2 did not bear the names of the Three Employees and therefore were not documents suggesting that they effected any profit-making transactions. Those documents only mentioned Messrs Walewski, Ponak, Kesteloot and Ong, all of whom did not work in Hong Kong;

54.2  the Board wrongly relied on Ms Seto’s original employment contract with GCC HK Branch to conclude that this required her to deal with the trading and leasing activities of the Group in Hong Kong. The contract was made in 2001, at a time when GCC was the entity in the Group responsible for conducting the trading and leasing business. However, the Group had since undergone reorganisation, and it was a leap to say that just because Ms Seto previously undertook certain work for GCC, she therefore undertook the same (or part of the same) for the Taxpayer;

54.3  the Board wrongly relied on the correspondence between Mr Poggio and Ms Lai. Apart from the Taxpayer’s claim that Ms Lai was mistakenly declared to have been employed by it in 2013/14, one of the emails was dated 18^th December 2014, which was eight months after the relevant years of assessment, and the customers referred to therein were not the Taxpayer’s; both emails had been provided by KPMG to the Assessor as examples of Ms Lai’s work for TCL (under its former name of Gold Container Leasing Pte Limited) under the instruction of Mr Poggio in his capacity as director of TCL; Ms Lai’s work was said to have been administrative in nature;

54.4  the Board wrongly inferred from Ms Seto’s contract with GCC HK Branch that Mr Durand had signed it in Hong Kong, when in fact the human resources functions of the Group were carried out by an entity in France, as recorded in contemporaneous service agreements, and this was not challenged by the Commissioner before the Board;

54.5  the Board further wrongly inferred from Ms Seto’s contract with GCC HK Branch that it was “procured in Hong Kong”, and anyway this was irrelevant to the issue of the source of the Taxpayer’s profits;

54.6  Ms Seto’s contract of employment with GCC HK Branch did not say anything about the trade or business carried on by the Taxpayer;

54.7  even if, contrary to the Taxpayer’s case, the Three Employees rendered services to the Taxpayer at any time during the six years of assessment in question, it did not follow that they played any important part in procuring or effecting any of the agreements for sale and purchase of shipping containers, the Lease Agreement, or any leasing operation thereunder.

E3.  The Commissioner’s response

55.  At the hearing, Mr Ng’s submission was essentially that the Commissioner did not have to prove anything before the Board, and that what the Board did was to reject the Taxpayer’s case that it did nothing in Hong Kong, so that the Taxpayer’s appeal was rightly dismissed. What the Taxpayer was now seeking to do was asking the court to re-weigh the evidence. The Taxpayer could not show that the Board’s conclusion was contrary to the only true and reasonable conclusion.

E4.  Analysis

56.  In my view, Mr Mariani’s submissions as to the difficulties in the Board’s reasoning as summarised above are well-founded, although I must emphasise that in saying this, I am not seeking to express any views as to what the findings of fact should be. For example, although I accept that just because Ms Seto previously dealt with trading and leasing activities of the Group under her 2001 contract with GCC HK Branch, it did not necessarily follow that she undertook the same work for the Taxpayer, I am not seeking to suggest, as a positive finding, that Ms Seto never dealt with any trading and leasing activities of the Taxpayer. To take another example, although I accept that one cannot simply infer from Ms Seto’s contract with GCC Branch that either Mr Durand signed it in Hong Kong or that it was “procured in Hong Kong”, I am not seeking to suggest that Mr Durand indeed signed the contract outside Hong Kong or that it was “procured” (in any sense) outside Hong Kong.

57.  Of course, it was for the Taxpayer to prove its case before the Board, and the Commissioner did not have the burden to prove anything. However, the present case was not simply one of the Board finding that the Taxpayer failed to prove its case. It appears that the Board did come to the positive view[10] that the Taxpayer had profit-producing operations in Hong Kong (see Decision at [12.2], [12.8], [12.10], [12.11]), and not just that the Taxpayer failed to discharge its burden of proof. Yet it is not clear what, in the Board’s view, those profit-producing operations in Hong Kong were.[11] For example, it is not clear whether the Board considered that the Three Employees had a role to play in relation to the representative Transaction 1 and Transaction 2, what the “trading and leasing matters in Hong Kong” conducted by Ms Seto in Hong Kong for the Taxpayer (Decision at [12.8]) were, or what the “tasks relating to the trading and leasing of containers” conducted by Ms Lai in Hong Kong for the Taxpayer (Decision at [12.10]) were, or what Mr Penas did in Hong Kong for the Taxpayer which may have constituted profit-producing operations. It is therefore not possible to assess whether those were indeed the operations which produced the Taxpayer’s profits, or were merely antecedent or incidental to such operations. Nor was there a consideration of whether it was these activities in Hong Kong, or the activities carried out by the directors overseas as relied on by the Taxpayer, which gave rise to the profits of the Taxpayer. Furthermore, the reasoning of the Board suggests that it had in mind matters which (at least to the extent as explained in the Decision) did not appear to have any relevance to the question of where the Taxpayer’s profits were sourced (such as where Ms Seto’s employment contract was signed).

58.  In the circumstances, even if the Board found that the Taxpayer failed to prove its case that it had no operations in Hong Kong, it did not necessarily follow that what was done outside Hong Kong must have constituted the profit-producing operations which gave rise to the income under assessment. On the facts as found, it is simply not possible to tell.

59.  In view of my conclusion below that the matter ought to be remitted to the Board, I emphasise once again that nothing in this judgment should be taken as findings of fact as to the source of the Taxpayer’s profits.

E5.  Conclusion regarding Grounds 2, 4

60.  I am of the view that the Board erred in its approach to ascertaining the source of the Taxpayer’s profits, although I am not able, on the Board’s findings as they currently stand, to say that the Board’s conclusions (that the Taxpayer conducted profit-producing transactions in Hong Kong, and that the Three Employees’ services amounted to the conduct of a trade or business in Hong Kong such that the Taxpayer’s profits were sourced in Hong Kong) are contrary to the true and only reasonable ones.

F.  GROUND 3: WHETHER BOARD ERRED IN FAILING TO DISTINGUISH BETWEEN TRADING AND LEASING PROFITS, AND IN CONCLUDING THAT LEASING PROFITS SOURCED IN HONG KONG

61.  Ground 3 is also concerned with the third condition under s.14 IRO, but in relation to the Taxpayer’s profits from leasing shipping containers to TCL.

F1.  The Board’s findings

62.  As the wording of Ground 3 complains, the Board dealt with the Taxpayer’s container trading profits and container leasing profits together. It appears that the Board’s main analysis regarding the issue of source was set out in the Decision at [12], and no distinction was drawn between trading and leasing profits, ending at [12.12] with the view that the Taxpayer’s case that it did nothing in Hong Kong to earn its profits was incredible. The Board then went on at [13] to deal with “issues specifically relating to leasing activities” – in other words, additional points which related only to leasing and not to trading.

63.  Within [12], the Board did not draw any distinction between the operations giving rise to the trading profits and those giving rise to the leasing profits.

64.  Then in [13], the Board made two points regarding the Taxpayer’s “leasing activities”. The first was that the Taxpayer’s claim that the Lease Agreement was not made in Hong Kong was not adequately supported by evidence, although this was not considered to be fatal to the Taxpayer’s case (see Decision at [13.2], [13.4]).

65.  The second point was that cl.1(b)(iii) of the Lease Agreement “cannot be ignored, and in all likelihood, is most indicative of the truth which undermines [the Taxpayer’s] case”. That clause declared that:

“the Lessor and the Lessee agree (A) to treat the transactions contemplated by this Agreement as a true lease of the Lessor Containers by the Lessor to the Lessee for Hong Kong Profits Tax purposes, and Singapore income tax purpose, and (B) to cooperate and take positions consistent with such treatment in filing their respective Hong Kong Profits Tax and Singapore Income Tax returns, if any.”

66.  The Board took the view that this declaration was “fatal to [the Taxpayer’s] appeal, for it compellingly implies that [the Taxpayer] had historically treated and committed the profits from its leasing activities as chargeable to profits tax, and to take any contrary position in this appeal would be most uncooperative and inconsistent with the only fair inference of such a Declaration”.

F2.  The Taxpayer’s case

67.  The Taxpayer says that:

67.1  its container trading and container leasing activities were separate and distinct businesses, and the Taxpayer conducted different operations for each. It sold containers in a competitive market, generally to third party buyers, whereas it leased containers to a single captive lessee, TCL. The locality of the profits of each such business should have been ascertained by reference to where those operations took place;

67.2  the Board in fact considered that the Lease Agreement was the source of the leasing profits, but erred in its analysis of this agreement;

67.3  the Board erred factually in holding that there was insufficient evidence that Mr Ponak was not in Hong Kong when he signed the Lease Agreement, as his travel records and passport showed that this was indeed the case;

67.4  cl.1(b)(iii) of the Lease Agreement merely stated that the parties agreed that the container leasing ought to be treated as a leasing operation for tax purposes in Hong Kong and Singapore, but did not say anything about (a) whether the profits from leasing should be assessable to tax or (b) the locality of such profits.

F3.  The Commissioner’s response

68.  The Commissioner says that:

68.1  the Board was alive to the distinction between trading and leasing activities. It had been the Taxpayer’s case that when it acquired containers, they would be leased out to TCL (and TCL would sub-lease them to third parties) so that they could be marketable and tradable. Indeed, this is why KPMG had told[12] the Assessor that “the leasing activities should [therefore] be part and parcel of the [Taxpayer’s] trading activities”;

68.2  the Board was aware that Mr Ponak had made a deposition that he had not visited Hong Kong at any time for business purposes, and it was within the Board’s remit to decide whether to accept such evidence;

68.3  the Board was entitled to consider cl.1(b)(iii) of the Lease Agreement.

F4.  Analysis

69.  For the reasons explained above, I do not agree that the Board considered that place where the Lease Agreement was made was “pivotal” to its conclusion regarding the source of profits.[13] The Board dealt with the issue of source of both the trading and leasing profits in the Decision at [12]. The observations in relation to the Leasing Agreement were dealt with as additional points in [13], and expressly indicated that the place where the Lease Agreement was made was not critical to the Decision in [13.4].

70.  Given the circumstances in which the Taxpayer leased containers (to render them saleable), it is understandable why the Board dealt with trading and leasing of containers together: the leasing of the containers was not a free-standing, independent activity distinct from the trading of the containers.

71.  It is necessary to determine the facts as to what was done in getting the containers bought, leased and then sold, so as to determine whether the leasing (and trading) profits were sourced in Hong Kong. At the same time, although the leasing and trading activities were closely linked, it does not necessarily follow that they took place in the same jurisdiction and that the leasing profits were sourced from the same place as the trading profits.

72.  The problem is that one cannot tell from the Decision what activities the Board considered to constitute the Taxpayer’s trading operations and what activities the Board considered to constitute the Taxpayer’s leasing operations, and where the activities took place. The Board’s decision in relation to the Taxpayer’s leasing activities suffers from the same absence of findings as in relation to the Taxpayer’s trading activities.

73.  Turning to the criticisms of the Decision at [13], to the extent that the Board considered that the place where the Lease Agreement was made was a relevant factor to consider, it is not clear why the Board considered that there was insufficient evidence to prove the Taxpayer’s case that the agreement was made outside Hong Kong. Whilst Mr Ponak did not expressly state that he signed the Lease Agreement outside Hong Kong, he did say that he never visited Hong Kong for business purposes, and that he never travelled to Hong Kong for reasons connected with the Taxpayer’s trade. In any event, his passport records showed that he was not in Hong Kong when he signed the Lease Agreement.

74.  As for cl.1(b)(iii) of the Lease Agreement, I agree with Mr Mariani that it does not shed any light on (a) whether the profits from leasing should be assessable to tax or (b) the locality of such profits. The clause did not identify or otherwise touch upon the activities giving rise to the leasing income, let alone the location in which such activities took place.

F5.  Conclusion regarding Ground 3

75.  In my view, the Board should have distinguished between the operations giving rise to the Taxpayer’s trading operations and leasing operations, and should have made findings as to what the leasing operations were and where these were carried out, in order to properly identify the source of the leasing profits. Insofar as the Board relied on cl.1(b)(iii) of the Lease Agreement, or its view that there was no evidence as to where the Lease Agreement was made, to fortify its view that the leasing profits were sourced in Hong Kong, this was, with respect, erroneous. However, I am not able, on the Board’s findings as they currently stand, to say that the Board’s conclusion that the Taxpayer’s leasing profits was sourced in Hong Kong is contrary to the true and only reasonable one.

G.  REMITTER

76.  The implication of the views I have expressed above in relation to Grounds 2, 3 and 4 regarding the reasoning of the Board is that the Decision was arrived at by reference to irrelevant factors, and that it is unclear whether proper regard was had to relevant factors. Because of the insufficiency of findings in relation to the Taxpayer’s profit-producing activities, I am at this stage unable to say that the Board’s conclusion (that the Taxpayer conducted profit-producing transactions in Hong Kong) is contrary to the true and only reasonable one.

77.  I had earlier raised with the parties the issue of remitting the matter to the Board for the making of further findings. The possibility of remitting the matter before the determination of the appeal was canvassed, with a view to having all relevant facts placed before the court before determination of the appeal. The parties agreed[14] that the court had the jurisdiction under s.69AA IRO to order a remitter prior to determination of the appeal. However, there was doubt as to whether a remitter could properly made, given the quorum requirements in s.65 IRO, to a Board consisting of only two members (as one of the members of the Board passed away subsequent to the delivery of the Decision), and the parties agreed that remitter to a Board comprising one or more fresh members would be impractical in the unique circumstances of the present case where supplemental findings were called for.

78.  Mr Mariani subsequently submitted that the Board’s failure to make adequate findings of fact amounted to a failure by the Board to give reasons, which was a self-standing ground of appeal sufficient in itself to vitiate the Decision and that remission should not be ordered.[15] Leaving aside for the moment the fact that the Taxpayer did not seek leave to appeal against the Decision on this ground, I would not have accepted this argument.

78.1  A failure to make findings of fact does not necessarily amount to a failure to give reasons for a decision. In the present case, the Board did give its reason for rejecting the Taxpayer’s case. However, at the same time, there were errors in the approach taken to the issue of source of profits.

78.2  In any event, whether or not there was a failure to make adequate findings of fact or a failure to give reasons, it does not necessarily follow that the Decision should simply be quashed and that there should not be a remitter. Mr Mariani cited Award Drinks Limited (in liquidation) v The Commissioner for Her Majesty’s Revenue and Customs [2020] UKUT 0201 as an example of a tribunal allowing an appeal rather than remitting to the fact-finding tribunal. That was a case where the fact-finding tribunal failed to give reasons on a discrete issue of why certain documents were not accepted at face value; the Upper Tribunal considered that whilst the failure to give reasons was an error of law, the rejection of the documents was justified on the evidence before it, so that there was no need to remit the matter to the fact-finding tribunal. See [85] to [92]. The authority did not establish any principle against remitter; on the contrary, the Upper Tribunal considered whether or not remitter should be ordered.

79.  Unlike ING Baring, this is not a case where sufficient findings have been made such as to enable the relevant ones – identifying the activities which gave rise to the Taxpayer’s profits and distinguishing them from antecedent or incidental activities – to be focused upon to determine the geographical source of the profits. In the circumstances, it seems to me that the appropriate course, in relation to Grounds 2 to 4, is to remit the matter to the Board for a rehearing.

80.  The parties were agreed that remission should be made to a freshly-constituted, three-person Board.[16]

H.  DISPOSAL

81.  I dismiss the Taxpayer’s appeal insofar as it relates to Ground 1.

82.  I allow the Taxpayer’s appeal insofar as it relates to Grounds 2 to 4, and order, pursuant to s.69AA(1)(a)(ii) IRO, that the matter be remitted to a freshly-constituted Board for a new hearing as to whether the Taxpayer’s profits from its (1) container trading business and (2) container leasing business were sourced in Hong Kong for the six years of assessment in question. (For the avoidance of doubt, this does not extend to a reopening of the Board’s findings in the Decision at [10] in relation to the issue of whether the Taxpayer carried on business in Hong Kong, since the Taxpayer’s appeal under Ground 1 is dismissed.)

83.  Given that the Taxpayer has been successful on Grounds 2 to 4, I further make a costs order nisi that the Commissioner is to pay to the Taxpayer the costs of and occasioned by the appeal, to be taxed if not agreed.