Tax Treaty Case Law around the Globe 2023

1. Introduction

This contribution concerns a decision of the High Court of Hong Kong Special Administration Region (Court of Appeal) delivered on 17 May 2022 which involves the application of the employment income provisions in Article 14 of the Hong Kong–Mainland China Income Tax Arrangement (2006) (the Hong Kong–Mainland China Tax Arrangement). The question at issue in this case consisted of two parts: In the absence of any contractual allocation, (i) what is the proper approach for apportionment of the time that a Hong Kong individual tax resident has rendered services under a Hong Kong place of employment in the territories of Hong Kong and Mainland China respectively; (ii) furthermore, whether the part of his income apportioned to weekends and Mainland China holidays (the “leave pay”) was income derived by him from rendering the aforesaid services in Mainland China.

This case is important because it was the first case where the High Court of Hong Kong expressly decided the formula for apportioning the time and income of a taxpayer rendering services in territories outside of Hong Kong. Hong Kong preserved its tax autonomy for 50 years when China resumed sovereignty over it in S. 14819...