Hong Kong Ordinances

INLAND REVENUE ORDINANCE - SECT 39E

Allowances under this Part in respect of capital expenditure on leased machinery and plant

(Past version on 01/07/1997).
(Past version on 30/06/1997).

Adaptation amendments retroactively made - see 12 of 1999 s. 3

(1) Notwithstanding anything to the contrary in this Part, a person

        (in this section referred to as "the taxpayer") who incurs capital 
expenditure on the provision of machinery or plant, being machinery or plant
acquired by the taxpayer under a contract entered into after the commencement
of the Inland Revenue (Amendment) Ordinance 1986 (7 of 1986), for the purpose
of producing profits chargeable to tax under Part IV shall not have made to
him the initial or annual allowances prescribed in section 37, 37A or 39B if,
at a time when the machinery or plant is owned by the taxpayer, a person holds
rights as lessee under a lease of the machinery or plant, and-

   (a)  the machinery or plant was, prior to its acquisition by the  taxpayer,
        owned and used by that person (whether alone or with others), or any
        associate of that person (which person or any such associate is
hereinafter referred to as "the end-user"); or

   (b)  the machinery or plant, not being a ship or aircraft or any part
        thereof, is while the lease is in force-

        (i)    used wholly or principally outside Hong Kong by a person other
               than the taxpayer; or (Amended 15 of 1992 s. 4)

        (ii)   the whole or a predominant part of the cost of the acquisition
               or construction of the machinery or plant was financed directly
               or indirectly by a non-recourse debt; or

   (c)  the machinery or plant is a ship or aircraft or any part thereof and-

        (i)    the person holding rights as lessee is not an operator of a 
               Hong Kong ship or aircraft; or

        (ii)   the whole or a predominant part of the cost of acquisition or
               construction of the ship or aircraft or the part thereof was
               financed directly or indirectly by a non-recourse debt.
               (Replaced 15 of 1992 s. 4)

(2) Subsection (1)(a) shall not apply where-

   (a)  the machinery or plant was acquired by the taxpayer on payment from
        the end-user at not more than the price which the end-user paid to the
        supplier (not being a supplier who is himself an end-user); and

   (b)  no initial or annual allowances have at any time prior to the
        acquisition of the machinery or plant by the taxpayer been made under
        section 37, 37A or 39B to the end-user in respect of such machinery or
        plant.

(3) For the purposes of subsection (2) an allowance shall be deemed not to
have been made if the end-user, by notice in writing to the Commissioner
within 3 months of the date on which the capital expenditure 
on the provision of machinery or plant giving rise to the allowance is
incurred, or within such further time as the Commissioner may, in any
particular case, permit, disclaims such allowance.

(4) For the purposes of this section, where a trustee of a trust estate or a
corporation controlled by such a trustee owns machinery or plant or holds
rights as a lessee under a lease of machinery or plant, the trustee, the
corporation and the beneficiary under the trust shall each be deemed to be the
owner or holder, as the case may be, of rights as a lessee of the machinery or
plant. (Replaced 15 of 1992 s. 4)

(5) In this section-

"acquisition" (取得) means acquisition by a person as owner and includes
holding or hiring under a hire-purchase agreement or, if the hire-purchase 
agreement is a conditional sale agreement, holding as purchaser;

"associate" (相聯者), in relation to a person holding rights as lessee
under any lease of machinery or plant (including a person who is deemed to be
holding such rights), means- (Amended 15 of 1992 s. 4)

   (a)  where the person holding such rights is a natural person-

        (i)    a relative of the person holding such rights;

        (ii)   a partner of the person holding such rights and any relative of
               that partner;

        (iii)  a partnership in which the person holding such rights is a
               partner;

        (iv)   any corporation controlled by the person holding such rights,
               by a partner of the person holding such rights or by a
               partnership in which the person holding such rights is a
               partner;

        (v)    any director or principal officer of any such corporation as is
               referred to in subparagraph (iv);

   (b)  where the person holding such rights is a corporation-

        (i)    any associated corporation;

        (ii)   any person who controls the corporation and any partner of such
               person, and, where either such person is a natural person, any
               relative of such person;

        (iii)  any director or principal officer of that corporation or of any
               associated corporation and any relative of any such director or
               officer;

        (iv)   any partner of the corporation and, where such partner is a
               natural person, any relative of such partner;

   (c)  where the person holding such rights is a partnership-

        (i)    any partner of the partnership and where such partner is a
               partnership any partner of that partnership, any partner with
               the partnership in any other partnership and where such partner
               is a partnership any partner of that partnership and where any
               partner of, or with, or in any of the partnerships mentioned in
               this subparagraph is a natural person, any relative of such
               partner; (Replaced 65 of 1993 s. 4)

        (ii)   (Repealed 65 of 1993 s. 4)

        (iii)  any corporation controlled by the partnership or by any partner
               thereof or, where such a partner is a natural person, any
               relative of such partner;

        (iv)   any corporation of which any partner is a director or
               principal officer;

        (v)    any director or principal officer of a corporation referred to
               in subparagraph (iii);

"associated corporation" (相聯法團) means-

   (a)  a corporation over which the person holding rights under any lease of
        machinery or plant (including a person who is deemed to be holding
        such rights) has control; (Amended 15 of 1992 s. 4)

   (b)  a corporation which has control over such person holding rights, being
        a corporation;

   (c)  a corporation which is under the control of the same person as such
        person holding rights, being a corporation;

"beneficiary under the trust" (信託的受益人) means any person who
benefits or is capable (whether by the exercise of a power of appointment or
otherwise) of benefiting under a trust estate, either directly or through any
interposed person, or who is able or might reasonably be expected to be able,
whether directly or indirectly, to control the activities of the
trust estate or the application of its corpus or income;   (Replaced 15 of 
1992 s. 4)

"control" (控制), in relation to a corporation, means the power of a person
to secure-

   (a)  by means of the holding of shares or the possession of voting power in
        or in relation to that or any other corporation; or

   (b)  by virtue of any powers conferred by the articles of association or
        other document regulating that or any other corporation, that the
        affairs of the first-mentioned corporation are conducted in accordance
        with the wishes of that person;

"end-user" (最終使用者) means any person (whether alone or with others)
holding rights as lessee under a lease of machinery or plant or any associate
of such person;

"held for use" (持有以供使用) includes installed ready for use and held
in reserve;

"non-recourse debt" (無追索權債項), in relation to the financing of the
whole or a predominant part of the cost of the acquisition or construction of
any machinery or plant, means a debt where the rights of the creditor in the
event of default in the repayment of principal or payment of interest-

   (a)  are limited wholly or predominantly to any or all of the following-

        (i)    rights (including a right to moneys payable) in relation to the
               machinery or plant or the use of the machinery or plant;

        (ii)   rights (including rights to moneys payable) in relation to
               goods produced, supplied, carried, transmitted or delivered, or
               services provided, by means of the machinery or plant;

        (iii)  rights (including a right to moneys payable) in relation to the
               loss or disposal of the whole or a part of the machinery or
               plant or of the taxpayer's interest in the machinery or plant;

        (iv)   any conjunction of such rights as are referred to in
               subparagraphs (i), (ii) and (iii);

        (v)    rights in respect of a mortgage or other security over the
               machinery or plant; or

        (vi)   rights arising out of any arrangement relating to the financial
               obligations of the end-user of the machinery or plant towards
               the taxpayer, being financial obligations in relation to the
               machinery or plant;

   (b)  are in the opinion of the Commissioner capable of being limited as
        described in paragraph (a), having regard to either or both of the
        following-

        (i)    the assets of the taxpayer;

        (ii)   any arrangement to which the taxpayer is a party; or

   (c)  where paragraphs (a) and (b) do not apply, are limited by reason that
        not all of the assets of the taxpayer (not being assets that are
        security for a debt of the taxpayer other than a debt arising in
        relation to the financing of the whole or part of the cost of the
        acquisition of the machinery or plant) would be available for the
        purpose of the discharge of the whole of the debt so arising
        (including the payment of interest) in the event of any action or
        actions by the creditor or creditors against the taxpayer arising out
        of the debt;

"operator of a Hong Kong aircraft" (香港飛機的經營者) means a person
who-

   (a)  holds an air operators' certificate issued under the Air
Navigation (Hong Kong) Order 1995 (Cap 448 sub. leg. C); and   (Amended 12 
of 1999 s. 3)

   (b)  carries on business as an operator of aircraft and the business is
        controlled and managed in Hong Kong; (Amended 15 of 1992 s. 4)

"operator of a Hong Kong ship" (香港船舶的經營者) means a person who-

   (a)  is responsible for defraying all or a substantial portion of the
        expenses of operating the ship and the ship operates mainly in the
        waters of Hong Kong or between the waters of Hong Kong and waters
        within the river trade limits; and

   (b)  carries on business as an operator of ships and the business is
        controlled and managed in Hong Kong; (Added 15 of 1992 s. 4)

"principal officer" (主要職員) means-

   (a)  a person employed by a corporation who, either alone or jointly with
        one or more other persons, is responsible under the immediate
        authority of the directors for the conduct of the business of the
        corporation; or

   (b)  a person so employed who, under the immediate authority of a director
        of the body corporate or a person to whom paragraph (a) applies,
        exercises managerial functions in respect of the body corporate;

"relative" (親屬) means the spouse, parent, child, brother or sister of the
relevant person, and, in deducing such a relationship, an adopted child shall
be deemed to be a child both of the natural parents and the adopting parent
and a step child to be the child of both the natural parents and of any step
parent;

"used" (使用) includes held for use. (Amended 32 of 1998 s. 24)

(6) The amendments made to this section by section 4(b) and (d)(iv) of the
Inland Revenue (Amendment) Ordinance 1992 (15 of 1992) apply to
capital expenditure on the provision of machinery or plant under a transaction
entered into on or after 15 November 1990 except expenditure under a
transaction which was the subject of an application for advance clearance made
to the Commissioner before 15 November 1990 and the Commissioner before or
after that date expressed the opinion that the transaction would not fall
within the terms of section 61A or, where no such application was made in
respect of a transaction entered into before 15 November 1990 under which
expenditure was incurred on or after 15 November 1990, the transaction under
which the expenditure was made is, in the Commissioner's opinion, of the same
type as any for which, in the circumstances prevailing as at 14 November 1990,
he would have expressed the opinion that the transaction would not fall within
the terms of section 61A. (Added 15 of 1992 s. 4) (Added 7 of 1986 s. 7)

"acquisition" (取得)

"associate" (相聯者)

"associated corporation" (相聯法團)

"beneficiary under the trust" (信託的受益人)

"control" (控制)

"end-user" (最終使用者)

"held for use" (持有以供使用)

"non-recourse debt" (無追索權債項)

"operator of a Hong Kong aircraft" (香港飛機的經營者)

"operator of a Hong Kong ship" (香港船舶的經營者)

"principal officer" (主要職員)

"relative" (親屬)

"used" (使用)