Randeep S Grewal v. Commissioner of Inland Revenue

HCIA 3/2022

[2023] HKCFI 3109

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 3 OF 2022

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J U D G M E N T

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A.  Introduction

1.This is the hearing of the appeal by the Appellant[1] against the decision of the Inland Revenue Board of Review (the “Board”) dated 27 April 2022 (the “Decision” or the “Board’s Decision”) dismissing the Appellant’s appeal to the Board in respect of those assessments and additional assessments on the Appellant’s salary tax as set out in §1 of the Decision[2] (the “Assessments and Additional Assessments”). Central to the questions of law framed (the “Questions of Law”) is the correctness of CIR v Goepfert [1987] HKLR 888, followed and applied in Lee Hung Kwong v CIR [2005] 4 HKLRD 80, on the interpretation of Section 8 of the Inland Revenue Ordinance, Cap 112 (the “IRO”).

2.Mr Barrie Barlow SC appeared for the Appellant. Mr Stewart Wong SC leading Mr Julian Lam appeared for the Commissioner of Inland Revenue (“CIR”).

B.  The Questions of Law

3.The Questions of Law are in the following terms:

(a)  Question #1:

“Upon the true construction of Part 3 of the [IRO] and in particular its charging section, section 8(1), (1A) and (1B), did the Board’s Decision (in company with the decisions of the High Court/Court of First Instance in [Goepfert] and [Lee Hung Kwong] – all concluding that: ‘the place where the [employee’s] services are rendered is not relevant to the enquiry under s.8(1)’) misconstrue the charging section and apply the incorrect legal test as to whether or not the Assessments and Additional Assessments… had lawfully assessed income that was subject to the Part 3 charge?”

(b)  Question #2(1) and Question #2(2):

“Alternatively, upon the true construction of section 8(1), (1A) and (1B) and in the light of the facts agreed by the parties and/or found by the Board:-

(1) If Goepfert and Lee Hung Kwong were correctly decided, was the Board’s Decision (e.g. [Decision §74 c/f [Decision §89] nonetheless incorrect in law by failing to recognise and apply the ratio decedendi of those decisions, namely:

(a) following Bray v. Colenbrander (1953) 34 TC 138: ‘… the locality of the source of income is … the place where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing’; but

(b) where the place of payment is ‘nominal or pretended and unreal’ the real source is to be determined from: (i) the contract of employment; (ii) the residence of the employer; and (iii) the place where the contract of employment was negotiated and entered into?

(2) In any event, was the Board’s Decision ([Decision §§85-88]) also incorrect in law by failing to recognise that the facts agreed and/or found by the Board required the conclusion that, as a matter of law (e.g. Hui Yin Sang v. Tsoi Ping Kwan [2012] 2 HKLRD 1085), the residence of the Taxpayer's employer was not Hong Kong?”

C.  The Factual background

4.The Board sets out the facts agreed between the parties in §9 of the Decision[3], which it finds as facts[4].

5.The following are the gist.

6.The appeal concerns 6 years of assessment (2006/07, and 2008/09 to 2012/13, the “Relevant Years of Assessment”). The Appellant claims that he had a non-Hong Kong employment and his income for the relevant period should be assessed on a time apportionment basis[5].

7.Green Dragon Gas Ltd (“Green Dragon”) was incorporated in the Cayman Islands. Its registered address was there. Its shares were listed on the Alternative Investment Market (“AIM”) of the London Stock Exchange. Its principal activities were acting as a holding company and providing financing and management services to its subsidiaries.

8.At the relevant time, Green Dragon’s board of directors comprised one executive director (being the Appellant) and 4 other non-executive directors.

9.In the Directors’ Report for years ended December 2006 to 2008, Green Dragon disclosed that the principal activities were carried on from its principal place of business in Hong Kong. In the Chairman’s Statement in the same report, the Appellant as the Chairman stated that Green Dragon had its headquarters in Hong Kong.

10.Greka Gas China Limited (“GGCL”) was an investment holding company. It was incorporated in the Cayman Islands in 1997. In 2006, Green Dragon acquired 100% equity interest in GGCL from the Appellant, and became its holding company. GGCL was registered in Hong Kong as a non-Hong Kong company in 2007, with its principal place of address at a suite at Two Exchange Square (the “HK Address”). The Appellant was its sole director.

11.In 2006, the Appellant and Green Dragon entered into an Executive Employment Agreement (the “2006 Agreement”). The Appellant agreed thereby to serve in the capacity of Chairman and Chief Executive Officer (“CEO”) of Green Dragon. The annual base salary was HK$3,900,000 (clause 7). Benefits thereunder (“Executive Benefits”) included bonus, stock option scheme, housing/rent allowance, insurances, club memberships, 2 full time live-in maids, education benefits, and reimbursements for inter alia travelling and entertainment (clause 8).

12.On 1 January 2007, Green Dragon and GGCL entered agreements, and with the Appellant’s consent, for his secondment to perform services for GGCL for a term of 5 years. On 1 January 2012, the secondment was extended for 10 years.

13.In the Relevant Years of Assessment, the salaries and Executive Benefits received by the Appellant, as set out in the Decision[6], and as further summarized and tabulated by Mr Wong[7], are as follows:

Year of Assessment	2006/07 (HK$)	2008/09 (HK$)	2009/10 (HK$)	2010/11 (HK$)	2011/12 (HK$)	2012/13 (HK$)
Salary	-	3,900,000	3,900,000	4,125,000	4,774,319	4,773,060
Education benefits	153,316	72,050	244,100	157,500	175,331	182,759
Other allowances	813,225	1,783,012	1,712,293	1,775,283	1,218,085	1,550,044
Rent	1,425,409	2,016,000	1,344,000	4,079,526	4,066,546	4,411,633
Share option gain	-	-	-	-	55,995,770	-
Total	2,391,950	7,771,062	7,200,393	10,137,309	66,230,051	10,917,496

14.For some of the Relevant Years of Assessment, the Assessor initially raised on the Appellant assessments principally in accordance with his tax returns and his offshore claims made therein. After further enquiries, the Assessor rejected the Appellant’s offshore claims and made variably a number of assessment (for 2006/07), additional assessments (for 2008/09 to 2010/11 and 2012/13) and revised assessment (for 2011/12).

15.The Appellant was not satisfied with those Assessments and Additional Assessments.

16.The Appellant gave evidence before the Board via video-link. The Board considered that he was far from being a reliable witness. Various aspects of his evidence were rejected. The Board made findings in respect of the places where he had been living, his role and duties under the 2006 Agreement, where it was negotiated and entered into, and certain terms of the same. The Board accepted the CIR’s submissions that the central management and control of Green Dragon was Hong Kong. On the basis of the facts as agreed and found, the Board “finds that the source of the [Appellant’s] income from his employment in the years of assessment in question was Hong Kong. It follows that the [Appellant’s] income from his employment in the years of assessment in question was chargeable for Salaries Tax under section 8(1) of the IRO.”

D.  Question #1

17.I consider Question #1 first.

D.1.  Section 8 of the Inland Revenue Ordinance

18.I set out for ease of reference sections 8(1), 8(1A) and 8(1B) of the IRO in their totality (including the notes showing the time when various amendments were effected):

“8. Charge of salaries tax

(1) Salaries tax shall, subject to the provisions of this Ordinance, be charged for each year of assessment on every person in respect of his income arising in or derived from Hong Kong from the following sources—

(a) any office or employment of profit; and

(b) any pension.

(1A) For the purposes of this Part, income arising in or derived from Hong Kong from any employment—

(a) includes, without in any way limiting the meaning of the expression and subject to paragraph (b), all income derived from services rendered in Hong Kong including leave pay attributable to such services; (Amended 69 of 1987 s. 2)

(b) subject to subsection (1AB), excludes income derived from services rendered by a person who— (Amended 6 of 2019 s. 10)

(i) is not employed by the Government or as master or member of the crew of a ship or as commander or member of the crew of an aircraft; and

(ii) renders outside Hong Kong all the services in connection with his employment; and (Added 2 of 1971 s. 5. Amended 69 of 1987 s. 2)

(c) subject to subsection (1C) and section 50AA, excludes income derived by a person from services rendered by him in any territory outside Hong Kong where— (Amended 27 of 2018 s. 3)

(i) by the laws of the territory where the services are rendered, the income is chargeable to tax of substantially the same nature as salaries tax under this Ordinance; and

(ii) the Commissioner is satisfied that that person has, by deduction or otherwise, paid tax of that nature in that territory in respect of the income. (Added 69 of 1987 s. 2)

…

(1B) In determining whether or not all services are rendered outside Hong Kong for the purposes of subsection (1A) no account shall be taken of services rendered in Hong Kong during visits not exceeding a total of 60 days in the basis period for the year of assessment. (Added 2 of 1971 s. 5)”

D.2.  Parties’ stances

19.Both Mr Barlow and Mr Wong have in their respective written submissions helpfully summarized their stances.

20.Mr Barlow summarizes the Appellant’s case on Question #1 as follows[8]:

“In respect of Q1, the case of the Appellant … is that, correctly construed within its historical and constitutional contexts and as its own express terms indicate, section 8:-

(1) Identifies the territorial or geographical scope (namely, intra-territorial) of the section 8 charge, which is imposed upon employment income ‘arising in or derived from Hong Kong’ only.

(2) Defines that determinative phrase by expressly stating the sole and exclusive criterion to be applied, namely whether or not the employee’s services were rendered within Hong Kong.

(3) Expressly mandates the manner in which ‘dual’ cases (of some services rendered in Hong Kong and others outside Hong Kong) are required to be apportioned.

(4) Adopted its (compulsory) apportionment regime by amendment in 1971, presumably following consideration by the law draftsman of the leading taxation common law decisions then available (including the authoritative English and Australian decisions).

(5) By the wording of its 1971 amendments, suggests a choice to adopt the same criterion as the High Court of Australia had, earlier adopted in FCT v. French (1957) CLR 398 …”

21.Central to Mr Barlow’s submissions on Question #1 is the proposition that Goepfert, and Lee Hung Kwong which applied and followed it, were wrongly decided in concluding that the place where the employee services are rendered is not relevant to the enquiry under section 8(1) the IRO. During the hearing, and upon this Court’s request for further clarifications, Mr Barlow put forward in effect 3 grounds in support, that (1) whilst Macdougall J in Goepfert and Deputy Judge A To in Lee Hung Kwong expressly followed 3 English cases, namely Pickles v Foulsham (1925) 9 TC 261, Bennett v Marshall (1937) 22 TC 73, and Bray v Colenbrander and Harvey v Breyfogle (1953) 34 TC 138 (collectively the “3 English Cases”), they in fact misunderstood the statutory basis which underlined those cases, and that for the purpose of considering the interpretation of section 8 of the IRO, the 3 English Cases are distinguishable; (2) the conclusions reached in Goepfert and applied in Lee Hung Kwong failed to give voice to the statutory wording of the IRO (and in particular section 8 of the same); and that (3) Goepfert and Lee Hung Kwong were decided before the Privy Council decision of CIR v Hang Seng Bank Ltd [1991] 1 A.C. 306 as applied by inter alia the Court of Final Appeal in ING Baring (Securities) Ltd v CIR (2007) 10 HKCFAR 417 on the meaning of what Mr Barlow calls “section 14’s equivalent geographical pre-requisite”. Those main points summarized by Mr Barlow are encapsulated in §30 of his written submissions, that:

“The [Appellant] contends that the Goepfert decision in 1987 (following authority upon a differently framed section of the UK Act – instead of directly construing the actual language of section 8 c/f para.s 9 and 10 above) erroneously elided (see p. 901D-F and 902H-903B) section 8’s 1^st pre-requisite (the geographic pre-requisite) with its 2^nd pre-requisite (the contractual pre-requisite) in a manner which the Privy Council and our CFA have subsequently held to be an incorrect and impermissible construction of this Ordinance.”

22.I record further Mr Barlow’s clarifications in the course of his oral submissions on the following 2 matters:

(a)  At §63 of the Decision, the Board records that:

“Mr Barlow then put before this Board submissions that questioned whether Goepfert … has been impliedly overruled by the Court of Final Appeal’s judgment in Fuchs v Commissioner of Inland Revenue (2011) 14 HKCFAR 74, bearing in mind the importance the Court of Final Appeal attached to assessments being made based upon the wording of the statutory charging provision.”

(b)  Mr Barlow during the hearing before this Court also mentioned in passing that Goepfert had been overruled by Fuchs;

(c)  But as clarified Mr Barlow upon request by this Court, the point remains, in the light of the primacy of the language of the charging sections[9], whether Goepfert and Lee Hung Kwong failed to apply and give voice to the statutory wording, and whether the Assessments and Additional Assessments are within the charge under section 8[10];

(d)  In various parts of his written submissions, Mr Barlow makes reference to the constitutional regime and the Re-unification in 1997. Again as confirmed by Mr Barlow in the course of the hearing, those are only background matters, and may not directly bear upon the questions before this Court.

23.Mr Wong summarizes the CIR’s case on Question #1 as follows[11] (all emphasis original):

“The Appellant’s case is that s.8 mandates one sole and exclusive test for the geographical source of employment income, viz. the place where the employee renders his services, and that ‘dual’ cases – i.e. where services are rendered both in Hong Kong and overseas – require apportionment. This is contrary to the proper construction of s.8, by reference to its purpose as informed by its language and structure, as well as its legislative history. Properly construed, s.8(1) is the basic charge of salaries tax based on the situs of employment, with separate provisions intended to modify the scope of salaries tax under the basic charge by reference to the place where the employee renders his services, depending on the policy decisions at the time. As articulated in Goepfert and Lee Hung Kwong, and explained further below, the Appellant’s case would render ss.8(1A)(a) and (b) otiose. Further, the Appellant’s case is also inconsistent with the clear purpose of s.8(1A)(c), supported by the legislative debates, which was to only have a limited apportionment based on the place of rendering of services to provide relief from double taxation in a Hong Kong employment, which would again be otiose if an employee does not have to pay tax on income derived from services rendered outside Hong Kong irrespective of the situs of the employment and whether there will otherwise be double taxation.”

D.3.  Goepfert and Lee Hung Kwong

24.It is useful to give a summary on Goepfert and Lee Hung Kwong.

25.In Goepfert:

(a)  The taxpayer’s contract of employment was entered into outside Hong Kong. His employer was a company incorporated in New Jersey, U.S.A. During the relevant years of income, the taxpayer was seconded to a Delaware subsidiary registered in Hong Kong as an overseas corporation. His salary was paid to him in US currency in the U.S.A. The work which the taxpayer performed under secondment was for the benefit of various affiliates of the employer in the Far East. He did most of the work in Hong Kong. That was out of convenience and had no bearing on the work he did. On the facts, the Board found that the source of the taxpayer’s income was New York, not Hong Kong;

(b)  CIR appealed;

(c)  The taxpayer accepted that he was liable to pay salaries tax on that part of his income derived from services in Hong Kong, but contended that on a proper interpretation of section 8 the taxpayer was not liable for tax on that portion of his salary attributable to the services rendered outside Hong Kong;

(d)  In the judgment, Macdougall J started off by setting out the evidence before the Board and its findings. The learned judge then set out the submissions of Mr Feenstra, Crown Solicitors for the CIR, which he summarized, inter alia, as follows[12]:

“In short, there is a double test under s.8(1). First, if the salary earner has a Hong Kong employer, he is liable to pay salaries tax on the whole of his salary unless he can claim exemption by virtue of some other provision in s.8. Second, if the salary earner does not have a Hong Kong employer but substantially derives his income from services rendered in Hong Kong, he is also liable to pay salaries tax on his salary, and, because there is no specific statutory provision that allows for apportionment of tax on a ‘days in days out’ basis, the tax is payable on his entire salary.

According to Mr. Feenstra it is not helpful to speak of a ‘totality of facts’ test or, as it is sometimes referred to, an ‘all factors test’, nor is it permissible to weigh elements which relate to the situs of the employment against those which relate to the situs of the services.”

(e)  The learned judge then set out the submissions of Mr Flesch QC, counsel for the taxpayer. The learned judge recorded that:

“Mr. Flesch submitted that it is plain as a matter of statutory interpretation that paragraph (a) of s.8(1A) is an extension of the basic charge to tax that arises under s.8(1). In other words, if the income does not fall within the basic charge under s.8(1), the question then arises as to whether it is caught by the extended liability to tax under s.8(1A)(a).

He contended that, in determining for the purpose of s.8(1) whether income arises in or is derived from Hong Kong from any employment, regard is had to where the source of income, the employment, is located, not to the locality where the services of the employee are actually rendered.”

The learned judge then recorded Mr Flesch’s reliance upon the 3 English Cases, and observed that[13]:

“In examining these decisions it is not necessary to be drawn into an analysis of the labyrinthine provisions of the United Kingdom legislation. Suffice it to say that where in these three cases their Lordships refer to a ‘possession’ they have in mind an ‘employment’.

The precise question to which the House of Lords and the Court of Appeal addressed themselves was clearly stated by Sir Wilfrid Greene, M.R. in Bennet v. Marshall at p. 85:

‘... the question which falls to be decided in any particular case appears to me to be this: is the source of the income which it is sought to charge a source out of the United Kingdom or is it not?’

The question which is posed under s.8(1) is this: is the income derived from Hong Kong from a source of employment or is it not?

To my mind, although their Lordships’ enquiry focused on whether the income was derived from a source outside the United Kingdom, whereas the enquiry under s.8(1) centres on whether the income is derived from an employment in Hong Kong, each enquiry involves a consideration of the same factors. In essence, the question is the same in both cases.”

(f)  The learned judge went on to cite a number of passages from the 3 English Cases, including the following observations by Lord Normand in Bray (which in turn include Lord Normand’s citation of the observations by Romer LJ in Bennett v Marshall, which observations I underlined and italicized for ease of reference, and which I will refer to as the “Romer Conclusion”)), that[14]:

“… The question debated in Bennet v. Marshall was whether the ratio decidendi of this House in Foulsham was (a) that the place or places where the employee performed his duties were irrelevant to the question whether his employment was wholly outside the United Kingdom, and that the only relevant matter was the place of payment of his remuneration, or (b) that the place of payment was a relevant consideration, without excluding as irrelevant the place or places at which the duties were performed.

That question was carefully considered by Lawrence, J., and by the members of the Court of Appeal in Bennet v. Marshall, Sir Wilfrid Greene, M.R., devoted a large part of his judgment to a close examination of the speeches of each of the noble Lords who took part in Foulsham. All these learned judges came to the conclusion which I take from the words of Romer, L.J. His words are all the more worthy of attention since he confessed that, apart from authority, he would have come to a different view. After stating that Colquhoun v. Brooks 2 TC 490 had decided that

‘whenever there is source of income of which it can probably be said that it is wholly situated abroad, that source of income falls to be taxed under Case V of Schedule D,’

he concluded thus:

‘The House of Lords ... in Foulsham v. Pickles have definitely decided that, in the case of an employment, the locality of the source of income is not the place where the activities of the employee are exercised but the place either where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing.’[15]”

(g)  The learned judge also recorded that counsel had also referred him to several Australian cases including Federal Commissioner of Taxation v French (1957) 98 CLR 398 and Federal Commissioner of Taxation v Mitchum [1965] AITR 559, but he did not find them to be of any real assistance in construing ss. 8(1) and 8(1A)[16];

(h)  Then, importantly, the learned judge held and concluded[17] that (with emphasis (by bolding) added for ease of reference):

“As a matter of statutory interpretation I am unable to escape the conclusion that, although s.8(1) must be construed in the light of and in conjunction with s.8(1A), s.8(1A)(a) creates a liability to tax additional to that which arises under s.8(1). It is an extension to the basic charge under s.8(1). If it were otherwise s.8(1A)(a) would be virtually otiose and s.8(1A)(b) completely unnecessary.

It follows that the place where the services are rendered is not relevant to the enquiry under s.8(1) as to whether income arises in or is derived from Hong Kong from any employment. It should therefore be completely ignored.

That being so, what is the correct approach to the enquiry? The approach that commends itself to me, and which I take to be correct, is that adopted by the English courts in the cases cited by Mr. Flesch.

In my view this is an approach that is entirely consistent with a correct interpretation of s.8, for although at first sight it might seem somewhat illogical to ignore the place where the services are rendered, it seems to me that to do so is consistent with an acceptance that s.8(1A)(a) is an extension of the basic charge imposed under s.8(1).

…

Specifically, it is necessary to look for the place where the income really comes to the employee, that is to say, where the source of income, the employment, is located. As Sir Wilfrid Greene said, regard must first be had to the contract of employment.

This does not mean that the Commissioner may not look behind the appearances to discover the reality. The Commissioner is not bound to accept as conclusive, any claim made by an employee in this connexion. He is entitled to scrutinise all evidence, documentary or otherwise, that is relevant to this matter.

If any authority be needed for this basic proposition one needs only to refer to the words of Lord Normand at p. 155 of Bray v. Colenbrander:

‘My Lords, in each of these appeals the respondent entered into a contract of employment with an employer resident abroad. The contract was in each case entered into in the country of the employer's residence and it provided for payment of the employee's remuneration in that country. Parenthetically it should be said that there is no suggestion that the place of payment was nominal or pretended, or that the real or genuine place of payment was not the place specified in the contract. Nothing, therefore of what follows in this opinion in any way touches a case where the designated place of payment is challenged as nominal or pretended and unreal.’[18]

There can be no doubt therefore that in deciding the crucial issue, the Commissioner may need to look further than the external or superficial features of the employment. Appearances may be deceptive. He may need to examine other factors that point to the real locus of the source of income, the employment.

It occurs to me that sometimes when reference is made to the so called ‘totality of facts’ test it may be that what is meant is this very process. If that is what it means then it is not an enquiry of a nature different from that to which the English cases refer, but is descriptive of the process adopted to ascertain the true answer to the question that arises under s.8(1).”

(i)  Towards the end of the judgment[19], the learned judge summarized the position as follows:

“If during a year of assessment a person’s income falls within the basic charge to salaries tax under s.8(1), his entire salary is subject to salaries tax wherever his services may have been rendered, subject only to the so called ‘60 days rule’ that operates when the taxpayer can claim relief by way of exemption under s.8(1A)(b) as read with s.8(1B). Thus, once income is caught by s.8(1) there is no provision for apportionment.

…

On the other hand, if a person, whose income does not fall within the basic charge to salaries tax under s.8(1), derives income from employment in respect of which he rendered services in Hong Kong, only that income derived from the services he actually rendered in Hong Kong is chargeable to salaries tax. Again, this is subject to the ‘60 days rule’.”

(j)  CIR’s appeal was for the above reasons dismissed.

26.The facts in Lee Hung Kwong are of lesser importance. Suffice it is to note the following:

(a)  At §22 of the judgment, Deputy Judge A To cited the part of Macdougall J’s judgment in Goepfert as reproduced (and emphasized by bolding) in §25(h) above;

(b)  At §23, the learned Deputy Judge express full agreement to the same. He provided reasons as to why he did, based on his interpretation of the wording and structure of the ss. 8(1) and 8(1A);

(c)  At §§24 to 26, the learned Deputy Judge discussed the 3 English Cases. In particular, having cited the Romer Conclusion, the learned Deputy Judge observed[20] that:

“24. … Thus, where the source of income is from an employment, the locality of the source of income is the place where the contract for payment is deemed to have a locality. By ‘contract for payment’, Lord Normand must mean the contract of employment based on which the employee earned his payment and not necessarily the place where the payments are made. The place of payment is of course an important indicator of the locality of the contract and is prima fade the locality of the contract. But it is not conclusive: see for example Bennett v Marshall. If an employee enters into a contract of employment in Hong Kong with an employer resident in Hong Kong but had his salary paid into his Swiss bank account, it can hardly be doubted that the locality of his contract is in Hong Kong. His income is from a Hong Kong source. In most cases, the place of payment is the locality of the contract. That must be why Lord Normand said that the two may mean the same thing, but not that the two mean the same thing.

25. As for the test for ascertaining the source of income, Sir Wilfrid Greene MR said in Bennett v Marshall [1938] 1 KB 591 at p.611:

The language, in [Foulsham v Pickles [1925] AC 458], it seems to me, quite clearly establishes the proposition that the place where the work is carried out is not a matter to which attention should be directed. If I am right in my view as to the effect of Foulsham v Pickles, it has the result in this case that the test for ascertaining the source of income is to look for the place where the income really comes to the employee.

26. The judgment of Sir Wilfrid Greene MR in Bennett v Marshall [1938] 1 KB 591 was approved by the House of Lords. Thus, the test as to the source of income is to look for the place where the income really comes to the employee. As Sir Wilfrid Greene MR said, regard must first be had to the contract of employment. This must include consideration as to the place where the employee is to be paid, where the contract of employment was negotiated and entered into and whether the employer is resident in the jurisdiction. But none of these factors are determinative. If the employer is resident in Hong Kong and entered into a contract of employment with an employee in Hong Kong, the employer must be carrying on business in Hong Kong from which the employer's profits in substance arise. The locality of the contract must therefore also be in Hong Kong: see for example, Foulsham v Pickles [1925] AC 458. On the other hand, if the employer is not resident in Hong Kong, but came to Hong Kong to recruit employees to work exclusively in China. The locality of the contract is not in Hong Kong. Consideration of these factors shows the very process adopted in ascertaining the locality of the contract. This is perhaps what has been referred to as the totality test.”

27.For the reasons as summarized above, Mr Barlow seeks to persuade this Court that I should not follow Goepfert and Lee Hung Kwong.

D.4.  Relevant principles of statutory interpretation

28.In Collector of Stamp Revenue v Arrowtown Assets Ltd (2003) 6 HKCFAR 517 at 554F-G, Lord Millett, NPJ observed as follows:

“It is a fundamental principle of the constitution of Hong Kong, as of the United Kingdom and the United States, that the subject is to be taxed by the legislature and not by the courts. In all three jurisdictions, therefore, every tax case, that is to say every question of tax or no tax, is ultimately a question of statutory construction. The question is always whether what the taxpayer did was within the intendment of the particular statutory provision which is invoked.”

29.Along that same line, and as referred to and stressed by Mr Barlow, in Fuchs, and in the context of interpreting the contractual requirement under section 8(1) of the IRO, Ribiero PJ at §14 emphasized the primacy of the statutory language – and see also Zarin v CIR [2022] HKCA 412, per Kwan, V-P at §§23(2) and 24, and Forlee v CIR [2022] HKCA 1098, per G Lam, JA at §37.

30.Mr Barlow stresses the importance of approaching the whole statute concerned as “a purposive unity”. As explained by Bokhary PJ in Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144 at 154B-C:

“When the true position under a statute is to be ascertained by interpretation, it is necessary to read all of the relevant provisions together and in the context of the whole statute as a purposive unity in its appropriate legal and social setting. Furthermore it is necessary to identify the interpretative considerations involved and then, if they conflict, to weigh and balance them.”

31.Guidance on statutory interpretation can also be found in a number of decisions:

(a)  HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, wherein Li CJ explained that:

“11. In interpreting a statute, the court’s task is to ascertain the intention of the legislature as expressed in the language of the statute. This is of course an objective exercise …

12. The modern approach is to adopt a purposive interpretation. The statutory language is construed, having regard to its context and purpose. Words are given their natural and ordinary meaning unless the context or purpose points to a different meaning. Context and purpose are considered when interpreting the words used and not only when an ambiguity may be thought to arise …

13. The context of a statutory provision should be taken in its widest sense and certainly includes the other provisions of the statute and the existing state of the law …

14. The purpose of a statutory provision may be evident from the provision itself. Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation. The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill. Similarly, a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end …”

Li CJ then went on to explain the difference between using statements made by officials of the Government to identify the purpose of the statutory provision on the one hand, and employing them on the other in order to ascertain the meaning of the statutory words under the approach laid down in Pepper v Hart [1993] AC 593, which stands in a fundamentally different position;

(b)  T v Commissioner of Police (2014) 17 HKCFAR 593, wherein Fok PJ at §195 explained that:

“… the object of the exercise is to ascertain the legislative intent of the language of the statute and, in this regard, a court cannot attribute to a statutory provision a meaning which the language, understood in the light of its context and statutory purpose, cannot bear …”:

(c)  HKSAR v Tse So So (2007) 10 HKCFAR 368, wherein Ribeiro PJ at §17 referred to the “structure and content” of the section under interpretation to ascertain its purpose;

(d)  Re Sng Allan, ex p Orient Securities (Hong Kong) Ltd [2021] HKCA 1847 wherein Barma JA gave the following summary:

“14. The proper approach to statutory interpretation is well settled, and there was no real dispute between the parties as to the applicable general principle, namely that the court will apply a contextual and purposive approach to give effect to the legislative intent whilst having due regard to the natural and ordinary meaning of the statutory language and words used and avoiding doing violence to the language of the provisions under consideration …

15. Mr Chain also referred to the following principles, which are also well-established and not controversial:

(1) When considering the context of a statutory provision, the court must have a holistic regard to the entire legislative and sublegislative framework which the provision forms part of, as well as its legislative history …

(2) In the course of ascertaining legislative intent, the court may have regard to a variety of background legislative materials, such as Law Reform Commission reports leading to the legislation, and the explanatory memoranda of legislative bills …

(3) Interpretation of a statutory provision should, as far as the wording allows, accord with common sense ...

(4) The court should lean against a construction that creates an absurdity, an anomaly, or otherwise produces an irrational or illogical result ...”

32.I apply the above.

D.5.  The legislative history

33.Unless otherwise specified, I use the term “Principal IRO” to denote the version of the IRO current at any particular given time.

34.The IRO was originally Ordinance No. 20 of 1947.

35.Under the 1947 version of the Principal IRO:

(a)  Salaries and Annuities Tax was imposed under Chapter III. Chapter III included Section 9;

(b)  The charging provision in Section 9 stipulated that:

“9. Salaries and Annuities Tax shall be charged at the rates provided for in section 14 and subject to the allowances hereinafter provided on all income arising in or derived from the Colony in respect of—

(a) any office or employment of profit; and

(b) any pension or annuity …

(c)  That charging provision was materially the same as the present section 8(1);

(d)  Section 10 set out what “Income from any office or employment includes”;

(e)  Section 2 stipulated, amongst others, that (the “Derivation Stipulation/1947”):

“In this Ordinance, unless the context otherwise requires:

…

‘income arising in or derived from the Colony’ for the purposes of Chapter III, shall, without in any way limiting the meaning of the term, include all income derived from services rendered in the Colony;”

(f)  The Derivation Stipulation/1947 was materially the same as the present section 8(1A)(a) (bar the reference to paragraph 8(1A)(b) (which did not exist at the time) and the reference to leave pay);

(g)  There was no present equivalent of subsections or paragraphs 8(1A)(b) or (c), or 8(1B);

(h)  The Derivation Stipulation/1947 was expressly “for the purposes of Chapter III”;

(i)  Profits Tax was imposed by sections 15 and 16, which were in Chapter IV;

(j)  Sections 15 and 16 provided inter alia that:

“15. Corporation Profits Tax shall, subject to the provisions of this Ordinance, be charged on every corporation carrying on trade or business in the Colony at the standard rate, in respect of the profits arising in or derived from the Colony from such trade or business.

16.  (1)  Business Profits Tax shall, subject to the provisions of this Ordinance, be charged at the standard rate on every person other than a corporation carrying on trade, profession or business in the Colony in respect of the profits arising in or derived from the Colony from such trade, profession or business.”

(k)  While the same phrase “arising in or derived from the Colony” was used in sections 15 and 16, there was nothing in section 2 on what “profits arising in or derived from the Colony” for the purpose of Chapter IV included, like the Derivation Stipulation/1947 did in relation to “income arising in or derived from the Colony” for the purpose of Chapter III.

36.In 1950, the Revised Edition of the Laws Ordinance 1948 authorised the renumbering of certain sections within certain Ordinances. Section 9 of the Principal IRO was renumbered section 8, and became part of Part III.

37.In 1955:

(a)  Ordinance No. 36 of 1955 was enacted to amend the Principal IRO;

(b)  Section 3 thereof amended section 2 of the Principal IRO “by the deletion of the definitions of the following expressions”, one of which being the Derivation Stipulation/1947;

(c)  Despite the deletion of the Derivation Stipulation/1947, a new section 13B in materially the same terms was added to Part III, which provided that:

“In this Part–

‘income arising in or derived from the Colony’ shall, without in any way limiting the meaning of the expression, include all income derived from services rendered in the Colony” ;

(d)  The net effect of the amendment was to move the Derivation Stipulation/1947 from section 2 to the new section 13B;

(e)  Section 8 of the Principal IRO was repealed and replaced by a new section 8. That brought section 8(1) to the current form.

38.In 1971:

(a)  Ordinance No. 2 of 1971 (“Ordinance No.2/1971”) was enacted to amend the Principal IRO. The bill was Inland Revenue (Amendment) Bill 1971 (the “1971 Bill”);

(b)  Section 8(1) of the Principal IRO was not affected;

(c)  Clause 5 of the 1971 Bill added to the Principal IRO sections 8(1A)(a), (b) and (1B). Their terms are materially the same as they appear now;

(d)  Specifically in relation to section 8(1A)(a):

(i)  We have seen the evolution of the 1947 Principal IRO. The equivalent of the present section 8(1A)(a) has existed since day one in the 1947 Principal IRO (in the form of the Derivation Stipulation/1947), then in 1955 moved to section 13B, and finally in 1971 further moved to and re-arranged as section 8(1A)(a);

(ii)  In so far as Mr Barlow in his written submissions[21] suggesting that section 8(1A)(a) was only first enacted in 1971, that was factually and historically not correct. Mr Barlow accepted that in the course of his oral reply. He also informed this Court that he consequently no longer sought to rely on Dilworth v Commissioners for Stamps and Land and Income Tax [1899] AC 99 on the interpretation of the word “include”. I will come back to this.

39.Central to the present appeal is the purposes of sections 8(1), (1A)(a), (1A)(b), (1A)(c) and (1B). It is important that they be identified. In this regard, the legislative history of those relevant provisions is relevant and admissible. So are the speeches of the proponents of the bills concerned – Cheung Kwun Yin §§13-14. I accept Mr Wong’s submissions in this regard. I do not accept Mr Barlow’s submissions that they were impermissibly referred to for the purposes of ascertaining the meaning of the statutory words (so that the Pepper v Harts conditions had to be satisfied).

40.Various Official Reports of Proceedings of the Hong Kong Legislative Council have been placed before this Court.

41.On 2 December 1970, when the Financial Secretary moved the second reading of the 1971 Bill, he said:

“In the context of Salaries Tax the [Inland Revenue Ordinance Review Committee[22]] recommended the maintenance of the concept of the ‘situs of the employment’ as determining liability to Salaries. But at the same time it proposed to use a residence test (although strictly in conflict with our basic principles) for the relief of certain categories of employees who in practice render services almost wholly outside the Colony…”

42.There are some uncertainties as to what the precise recommendations of Committee were[23] were. But as Mr Wong has submitted[24], which I accept, it is clear that both the Financial Secretary and the Committee were aware of the different charge criteria, basing on the situs of the employment verses the place where services were located, and that the purpose of the 1971 Bill was to maintain the criterion basing on the situs of the employment.

43.The purpose of Clause 5 of the 1971 Bill was further clarified by the Financial Secretary on 6 January 1971 upon the resumption of the second reading. For that debate, one of the proposed questions raised[25] related to Clause 5, that “It is not altogether clear how the rules are to be applied to seamen and aircrew who spend a large part of their time outside Hong Kong and I should be grateful if the honourable Financial Secretary could give us some examples”. In reply the Financial Secretary said:

“ My honourable Friend, Mr BROWNE, went on to say that it is not altogether clear how clause 5 is intended to apply to seamen and aircrews and to ask for examples. I think I shall have to go into the basic concepts behind our salary tax. Liability to tax may arise from two separate factors―

(a) from a Hong Kong contract of employment, wherever services are performed (the so-called situs of employment);

(b) from the performance of services in Hong Kong.

I said, when I introduced the bill, that we intended to maintain the first of these as the main general criterion but to give general exemption in the case of both (a) and (b) where a person otherwise chargeable renders services in the Colony for not more than 60 days in a year of assessment. This applies whether or not there is a Hong Kong contract of employment.”

44.In 1987, the Principal IRO was further amended by Inland Revenue (Amendment) (No 2) Ordinance 1987[26]. Section 2(c) thereof introduced and added the section 8(1A)(c). As to the purpose of that addition, the Financial Secretary said the following when moving the Second Reading of the relevant bill:

“… I have to say that this Bill does not go as far as my 1987-88 Budget speech, in which I proposed that the Inland Revenue Ordinance be amended to provide for the automatic granting of time apportionment where, in a year of assessment, an employee renders services outside Hong Kong for a period more than 60 days in total.

Given the more narrowly defined object of this Bill now before the Council, I think it would be helpful if I were to restate my reasons for introducing a time apportionment amendment. The first reason for my Budget proposal was to clarify, or tidy up, what had become an unclear situation. Assessment to salaries tax of employees who render services both within and outside Hong Kong has become a growing area of dispute between the Inland Revenue Department and taxpayers. The uncertainty in the law needed to be addressed. Secondly, I wanted to provide a measure of relief in double taxation cases, given that an overall review of double taxation by the Commissioner of Inland Revenue, will take some time to complete. And lastly, I wanted to limit the cost to the revenue of my proposal to between $25 million and $35 million.

My original Budget proposal would have had the effect of altering the test of source of salary income from the place of employment to the place where services are rendered. Time apportionment would have been granted not only to persons employed elsewhere than Hong Kong as at present, but also to persons employed in Hong Kong who under existing law are not entitled to time apportionment.

Sir, on further consideration, it became clear that a distinction should continue to be drawn between Hong Kong and non-Hong Kong employments, as those terms are presently understood, and that without this distinction the ambit of the proposal might be too broad, could be exploited and would cost the revenue significantly more than anticipated.

And there was another important factor. After I had delivered my Budget speech, the High Court handed down judgment in a tax case concerning a claim for time apportionment. This was the now well-known Goepfert decision …

In the light of these developments, I withdrew my original proposal for further consideration and consultation …

…

Following the judgment, and the interpretation now placed upon section 8 by the commissioner, salaries taxpayers are divided into two distinct categories: first, taxpayers who have a Hong Kong source of employment, and who are taxable on all income from that employment whether they render services in or outside Hong Kong; and second, taxpayers who have a source of employment outside Hong Kong and who are only taxable on income derived from services rendered in Hong Kong.

…

Sir, there is no doubt that the Goepfert case has helped to clarify the position of the second category of taxpayers to which I have referred that is, taxpayers who have a source of employment outside Hong Kong. Such taxpayers will often be employees of multi-national companies who come to work in Hong Kong.

This brings me back to the problem of taxpayers who have a Hong Kong source of employment and who are liable to double taxation as a result of their rendering services outside Hong Kong. This category will not benefit from the guidelines arising out of the Goepfert case. Thus in the absence of an amendment to the law, relief from double taxation would not be available.

It is in this context that I propose the amendment to the Inland Revenue Ordinance set out in the Bill now before this Council…”

D.6.  Interpretation of the relevant sections

45.With the above in mind, I come back to the interpretation of the relevant sections and subsections.

46.Mr Barlow refers to the wording of section 8(1). He submits that section 8(1) stipulates two pivotal perquisites for the charge, namely “arising in or derive from Hong Kong” (the “Geographic Pre-requisite”) from “any office or employment of profit” (the “Contractual Pre-requisite”). In support, he cites also the observations of G Lam JA in Forlee at [37], that “for salaries tax to be chargeable, there must be (i) income, (ii) accruing in the year of assessment, (iii) from Hong Kong, and (iv) from any office or employment of profit”.

47.The above are not controversial.

48.The issue engaged in the present appeal is rather what the Geographic Pre-requisite entails, whether it means the situs of the employment (as the CIR contends – the “Employment Situs Criterion”), or whether it means the place where the services concerned were rendered (as the Appellant contends – the “Place of Services Criterion”).

49.In my view, the observations of G Lam JA in Forlee were only meant to give a general identification of the elements that would trigger charge of salaries tax. They were clearly not meant to be determinative as to which of the 2 criteria are to apply.

50.I have set out above what Mr Barlow’s contentions are. Central to his contention is the interpretation that the sole and exclusive criterion to be applied upon a proper interpretation of section 8 of the IRO is “whether or not the employee’s services were rendered within Hong Kong.”

51.For the following reasons, I do not accept his submissions on the interpretation of section 8.

52.First and foremost, section 8(1) does not expressly say that the Place of Services Criterion is to be adopted. In §5(1) of his written submission, Mr Barlow submits that section 8 “Identifies the territorial or geographical scope (namely, intra-territorial) of the section 8 charge, which is imposed upon employment income ‘arising in or derived from Hong Kong’ ”. But section 8(1) does not stop there. The charge is on “income arising in or derived from Hong Kong from … any office or employment of profit” (emphasis added).

53.Next, and importantly, Mr Barlow’s contention, if correct, would lead to a complete overlap in the respective scopes of section 8(1) and section 8(1A):

(a)  Section 8(1A)(a) clearly ties the Geographic Pre-requisite to the place where the services were rendered;

(b)  If section 8(1) as Mr Barlow contends also adopts that same factor as the sole criterion, the two subsections overlaps.

54.The above reading of the 2 subsections is the main reason behind Macdougall J’s decision in Goepfert, and his observation that otherwise, section 8(1A)(a) would be virtually otiose.

55.Mr Barlow originally sought to rely on Dilworth for the proposition that the word “includes”[27] can be “equivalent to ‘mean and include,’ and in that case it may afford an exhaustive explanation of the meaning”[28].

56.But in the light of the words “without in any way limiting the meaning of the expression” (which also appear in section 8(1A)(a)), and the legislative history of the Principal IROs discussed above, Mr Barlow informed this Court that he no longer sought to rely on Dilworth.

57.Mr Barlow however continues to rely on CIR v County Shipping Co Ltd [1990] 2 HKLR 400[29]. He refers to the observations of Sachs J in Commissioner of Customs and Excise v Savoy Hotel Ltd [1966] 1 WLR 948, which Fuad V-P cited at 407B-D in County Shipping, that:

“‘Including’ is a word to which parliamentary draftsmen seem considerably addicted: one reason for this may be that in law it can have, according to its context, not only one or other of simple but in essence quite differing effects (for instance, in relation to the words that follow it may be found to have been used simply to enlarge, to limit, to define exhaustively or for the avoidance of doubts to repeat the preceding word or phrase), but it may also be used to secure on one and the same occasion more than one of those effects, thus putting the draftsman, but not necessarily the court, in a happy position.”

Mr Barlow submits that even if the Derivation Stipulation/1947 was inserted in 1947 just to emphatically render the matter beyond doubt, that legislative drafting device is not “otiose”.

58.But the structure of sections 8(1) and 8(1A)(a), and the context in which they first appeared, are in my view clearly against Mr Barlow’s submissions in the above regard:

(a)  In section 8(1A)(a), the word “includes” is followed by the words “without in any way limiting the meaning of the expression”;

(b)  Those words that follow denote clearly the intendment that the scope of 8(1) is meant to be wider than that of 8(1A)(a);

(c)  More importantly, the Derivation Stipulation/1947, including the words “without in any way limiting the meaning of the term” were in the 1947 Principal IRO on day one. It was introduced at the same time as the main charge (then imposed by section 9 in Chapter III). If the Legislature had meant to insert the Derivation Stipulation/1947 simply to avoid doubts, it could easily have introduced it as the main charge under section 9. The Legislature did not. That clearly suggests that the main charge was meant and intended to be wider than the scope of the Derivation Stipulation/1947. That also clearly suggests that section 8(1) was not meant to be exclusively defined by section 8(1A).

59.Mr Barlow’s interpretation also leads to another clear absurdity which section 8(1A)(b) would give rise:

(a)  As we have seen above, sections 8(1A)(a) and 8(1A)(b) were inserted (or re-arranged in the case of 8(1A)(a)) at the same time in 1971;

(b)  Section 8(1A)(a) is expressly made to read subject to section 8(1A)(b);

(c)  Section 8(1A)(b) contains an exclusion. It excludes “income derived from services rendered by a person who … renders outside Hong Kong all the services in connection with his employment” (emphasis added);

(d)  The scope of that exclusion is clear. It applies only if the person renders outside Hong Kong all the services concerned;

(e)  But if that person has rendered all the services concerned outside Hong Kong, under the Place of Services Criterion Mr Barlow contends for, there would be nothing that would require any exclusion;

(f)  Further, if the main charge in section 8(1) had already excluded from its scope income from any service rendered outside Hong Kong, that “built-in” exclusion would have been wider than the exclusion under section 8(1A)(b), which applies only if all the services concerned were rendered outside Hong Kong;

(g)  The provision of an exclusion which is narrower than the built-in exclusion would in my view have been absurd.

60.Section 8(1A)(c) would give rise to similar absurdity if Mr Barlow’s contention were correct. From its wording alone, Section 8(1A)(c) was introduced clearly just for the limited scope of providing relief for double taxation. It would not have been necessary, and its limited scope inexplicable, if Mr Barlow’s contention were correct.

61.In §§31 and 32 of his written submissions, Mr Barlow submits that:

“31. Our Ordinance (unlike most of its Commonwealth counterparts) contains no general apportionment provision. Within its Part 3, section 8’s sub-paragraphs (1A) plus (1B) provide for and govern the apportionment of liability to salaries tax in all cases where (as here) some employment income derives from ‘services rendered in Hong Kong’ and other employment income derives from services rendered ‘outside Hong Kong’. The 1971 amendments expressly rendered the ambit of section 8 consistent with the ambit of the Ordinance’s other charging sections, such as section 14 (see para. 25 above).

32. Thus, in order to ensure that ‘income … derived from services rendered in Hong Kong’ (save in respect of services rendered during short visits here) attracted liability to salaries tax and ‘income derived from services rendered … outside Hong Kong’ generally did not, in 1971, section 8 was amended in order to provide for the apportionment of salaries tax liability in respect of the two situations (which later became known as the ‘time in: time out’ formula – see Goepfert at p. 903A-C; and [Appellant’s Statement of Grounds and Reasons § 6(12)] …) wherein one situation satisfies section 8’s 1^st pre-requisite and the other does not). This was done by the addition to section 8 of its sub-sections (1A) and (1B) …”

62.I reject those submissions of Mr Barlow’s. They are inconsistent with the legislative history and plain meaning of the relevant sections. I repeat in particular the genesis of the present section 8(1A)(a). It was not first added only in 1971.

63.In my view, even without reference to the Official Reports of Proceedings of the Hong Kong Legislative Council, one readily sees that Mr Barlow’s contentions are inconsistent and at odds with the wording and structure of the relevant sections.

64.When those Official Reports of Proceedings of the Hong Kong Legislative Council are referred to, the purposes of the various subsections become absolutely clear. The Committee and the Financial Secretary both appreciated the differences between the Employment Situs Criterion and the Place of Services Criterion. At some stage, there was even some proposals that the latter be adopted. But it had never been. The former has from day one been used. And it has been so maintained. Exclusions and relief have also been introduced in supplement. The Place of Services Criterion has never been adopted.

65.In support of his contentions, Mr Barlow relies heavily on Hang Seng Bank and ING Baring. His submissions in this regard may be summarized as follows:

(a)  Hang Seng Bank and ING Baring both concerned the interpretation of section 14 of the IRO which imposes charge of profits tax;

(b)  Section 14(1) reads as follows (with emphasis added):

“Subject to the provisions of this Ordinance, 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.”

(c)  Mr Barlow highlights that underlined phrase of “profit arising in or derived from Hong Kong.” He submits that that is “section 14’s equivalent geographical pre-requisite”. He cites inter alia the following observations by Lord Bridge in Hang Seng Bank at 318C-F, that (with emphasis added for ease of presentation):

“The primary submission made on behalf of the commissioner is that the business of the bank is one and indivisible. It is carried on in Hong Kong and all the relevant operations which resulted in the profits in question being earned were directed from Hong Kong and owed their success to the expertise of officers of the bank employed in Hong Kong ...

Their Lordships cannot accept this submission. Three conditions must be satisfied before a charge to tax can arise under section 14: (1) the taxpayer must carry on a trade, profession or business in Hong Kong; (2) the profits to be charged must be ‘from such trade, profession or business,’ which their Lordships construe to mean from the trade, profession or business carried on by the taxpayer in Hong Kong; (3) the profits must be ‘profits arising in or derived from’ Hong Kong. Thus the structure of the section presupposes that the profits of a business carried on in Hong Kong may accrue from different sources, some located within Hong Kong, others overseas. The former are taxable, the latter are not ...”

(d)  He submits that since Re-unification, the Court of Final Appeal has endorsed, followed and applied Hang Seng Bank, notably in ING Baring;

(e)  He submits further that as the same determinative phrase has been used in both sections 8 and 14 of the IRO, Hang Seng Bank and ING Baring are applicable when interpreting section 8, and that there should be no conflicting constructions of the same term.

66.For the following reasons, I reject Mr Barlow’s submissions made on the strength of Hang Seng Bank and ING Baring:

(a)  In the absence of facts and circumstances showing the contrary, I agree that the same term within the same Ordinance should be given the same interpretation. Doing that honours the approach of “read[ing] all the relevant provisions together and in the context of the whole statute as a purposive unity in its appropriate legal and social setting”;

(b)  For that same reasons, and similarly in the absence of facts and circumstances showing the contrary, authoritative rulings on the interpretation of one phrase can be of importance on the interpretation of the same phrase even in different sections;

(c)  However, in my view, construing the whole statute as a purposive unity in its appropriate legal and social setting may in some cases point to the conclusion that one same phrase in different parts of the same Ordinance ought to be given different meanings. In my view, and for the following reasons, this is one of those cases;

(d)  Right from 1947 when the Principal IRO was introduced, the same phrase of “arising in or derived from [Hong Kong]” was adopted for both salaries and profits tax;

(e)  However, again from day one, the Derivation Stipulation/1947 existed. It was, as I have pointed out above, specifically stipulated to be “for the purposes of Chapter III”;

(f)  There was no similar stipulation for the purposes of Chapter IV;

(g)  The Derivation Stipulation/1947 has over the years been given different section numbers and moved to different places within the Principal IROs. But one thing has remained unchanged: its application has always been confined to the Part or Chapter of the Principal IROs where the salaries tax charge was or is in (but not that of the profits tax);

(h)  The above in my view shows clearly the legislative intendment that the phrase “arising in or derived from Hong Kong” as it appears in the salaries tax charge and profits tax charge is to be construed differently. In particular, for the purpose of the salaries tax charge, and for that purpose only, the Derivation Stipulation/1947 (and its subsequent iterations) should be taken into account;

(i)  In my view, that intendment on the part of the Legislature was made even clearer when the Derivation Stipulation/1947 was removed from section 2 in 1955 and relocated to the same Part where the salaries charge was in;

(j)  Mr Barlow submits that there must be a strong presumption that the Legislature intended the phase of “arising in or derived from Hong Kong” to be construed consistently. I do not want to digress into a discussion on the differences between a canon of interpretation or any presumption. Even if there is such a presumption, given the legislative history detailed above, it has in my view been rebutted;

(k)  The above also mean that the structure of the charging provisions for salaries tax and profits tax are different;

(l)  As can be seen from the underlined part of Lord Bridge’s observations in Hang Seng Bank cited above, crucial to His Lordship’s reasoning is the structure of section 14 and what that structure presupposes. The same reasoning cannot be transposed to section 8 simply because the same phrase of “arising in or derived from Hong Kong” has been used, without regard to the differences in structures;

(m)  Different from section 14, section 8(1) in fact presupposes and proceeds on the basis that the Place of Services Criterion is not relevant, which criterion only becomes included by virtue of section 8(1A). I have discussed the interpretation of section 8 above, and the absurdities which would otherwise result in;

(n)  There are further good legal and practical social reasons for approaching the salaries tax charge and profits tax charge differently. The former is contract-based, whereas the latter is activity-based. As explained by Sir Wilfred Greene MR in Bennett v Marshall in 602-603:

“… there is an inherent difference between a trade and a profession on the one hand and an employment on the other when one is considering … the source of the income? Trades and professions are … based on activity, either by the persons carrying on the trades or the persons carrying on the professions. A trade or profession is not attached to some specific contract, and, accordingly, in such a case it is impossible to put a finger on a particular contract as the source of the income. The profits of the profession and the profits of the trade come from the general state of activity of the trader or the professional man, … But in the case of employment different considerations arise. Employment arises from a contract of employment and, therefore, there is what there is not in the other cases, some definite contract to which to look when inquiring into the source of the income which it is sought to charge. I should have thought, therefore, that in the case of employment the contract is the first thing which must be looked at to find out the answer to the question raised in any particular case of employment : Is it or is it not income derived from a source out of the United Kingdom?”.

(o)  The above provide ample justifications for the adoption of the Employment Situs Criterion for charge of salaries tax, whilst adopting a different criterion based on the place of accrual of the source of the profits in the case of profits tax;

(p)  For the above reasons, I am of the view that Hang Seng Bank and ING Baring do not assist Mr Barlow.

67.Another strand of Mr Barlow’s submissions concerns whether an employment has any “situs” or location:

(a)  At §24.1 and 49 of his written submissions, Mr Wong submits that:

“24.1. There is no dispute that s.8(1) has the two requirements identified by the Appellant: namely, the geographical source and the economic source of the income. S.8(1) targets a specific kind of income, namely income sourced from an employment, and not any kind of income. The question is, does such income, economically sourced from the employment, arise in or derived from Hong Kong? An income arises or is derived from its economic source, which therefore has to be ascertained first, and separately, before considering its geographical source. If the employment is the economic source of the income, i.e. the income being arising or derived from the employment, the place where the income arises or is derived from is the location or situs of its economic source, namely the employment.”

“49. … unlike a trade or profession, governed by Part 4 of the IRO, the very nature of employment income, governed by Part 3, is that it has a single source, namely the employment. This is what s.8(1) prescribes, i.e. the source of the income being the employment itself. Therefore, the question is the geographical location of the economic source of employment income must be defined by the location or situs of the employment. See §24.1 above.”

(b)  Those submissions prompted Mr Barlow into submitting that, according to the relevant concepts in the context of conflict of laws, an employment is not any property. Choses in action under an employment contract can be ascribed a deemed situs or location, but the employee’s chose and the employer’s chose will usually have a different deemed situs, so that any notion or concept of a situs of employment is a fallacy, so that the commissioner’s contentions relying on the same are all confused and incorrect[30]. He further submits that there is no “economic Source” in tax law[31]. He cites IRC v Europa Oil (NZ) Ltd [1971] AC 760;

(c)  I do not find those submissions of Mr Barlow’s of assistance in the proper interpretation of section 8;

(d)  In §24.1 of his written submissions, Mr Wong states that there is no dispute as to the 2 requirements the Appellant identifies – the “Geographic Pre-requisite” and the “Contractual Pre-requisite”. It is just that Mr Wong uses the term “economic source of the income” in respect of the Contractual Pre-requisite. There is nothing more to it that requires detailed analysis of the case of Europa Oil (which involved the scope and operation of section 111(1) of the New Zealand Land and Income Tax Act 1954, and whether the Crown could disallow expenditure genuinely made when it could be found that some economic advantage accrued to the trader as a result of making the expenditure.) That case concerns entirely different points, which in my view in any event does not support Mr Barlow’s submission on this point;

(e)  The situs of an employment is a concept which represents the notion or issue posed by section 8(1), and the criterion applicable to decide it. That is a criterion wider than the Place of Services Criterion adopted by section 8(1A)(a), to be decided by a proper interpretation of the sections and the IRO, as has been conducted above. That is not a notion governed by any strict principles on conflict of laws, and trotting down those avenues does not assist. In any event, the question is more one of “deemed” locality. I repeat in this regard the Romer Conclusion. The purpose is to ascribe a locality to the employment – see the observations of Kitto J in French (cited below). I accept Mr Wong’s submissions as reproduced above.

68.Mr Barlow further criticizes the CIR for advocating “open-ended” chargeability criteria, which “offend against the ‘fundamental principle of the constitution of Hong Kong’ by conferring the authority to determine chargeability upon administrative (IRD) or quasi-judicial (the Board) fiat.” I do not accept those criticisms. The language of section 8(1) does not support any legislative intendment of adopting the Place of Services Criterion as the sole criterion. The overall structure and legislative history are also against it. The adoption of that single criterion amounts to re-writing the law. I accept Mr Wong’s submission in this regard. If upon a proper construction of the charge leads to the conclusion that “open-ended” chargeability is intended, then “open-ended” it should remain be.

D.7.  Conclusion on Question #1

69.For the above reasons, I am of the view that the interpretation of section 8(1) as reproduced in Question #1 (namely “the place where the [employee’s] services are rendered is not relevant to the enquiry under section 8(1)”) is a correct only. It is supported by a proper interpretation of the IRO as a whole, and in particular by the wording, structure, context, purpose and legislative history of the provisions.

70.Mr Wong submits that if this Court, having construed the provisions independently, agrees with the conclusion reached by Macdougall J and applied by Deputy Judge A To, there is in fact no need for this court to consider the 3 English Cases or the Australian case of French. I agree. Importantly, Macdougall J reached his conclusions (that where the services are rendered is not relevant to the enquiry under section 8(1) as to whether income arises in or is derived from Hong Kong from any employment, and that section 8(1A)(a) creates a liability to tax additional to the basic charge which arises under section 8(1)) through a process of statutory interpretation he himself undertook. The learned Judge did not simply adopt the conclusions reached in the 3 English Cases, or somehow felt compelled by them. I have analyzed Goepfert above, which analysis I will not repeat. I do not accept Mr Barlow’s submissions[32] that Macdougall J “follow[ed] authority upon a differently framed section of the UK Act - instead of directly construing the actual language of section 8”.

71.For the reasons set out alone, I conclude that Macdougall J in Goepfert, Deputy Judge A To in Lee Hung Kwong, and the Board have not misconstrued the charging section and have not applied the incorrect legal test. I answer Question #1 in the negative, in favour of the CIR.

D.8.  French and the 3 English Cases

72.In deference to the submissions made, I express the following views on French and the 3 English Cases.

73.I deal with French first.

74.To start with, I repeat Mr Barlow’s submission in §5(5) of his submissions (which I have reproduced above). French was decided in 1957. The Derivation Stipulation/1947 has been in existence since 1947. In so far as Mr Barlow suggesting that section 8(1A)(a) was only added in 1971, that submission is factually incorrect.

75.In any event, the issue in French, and the statutory regime which the case was concerned with, are different from what this Court is (or the Courts in Goepfert and Lee Hung Kwong were) concerned with:

(a)  In French, the taxpayer was a resident of Australia. Under an oral contract made in Sydney, he was employed as an engineer. By arrangement with his employers, they paid his salary monthly into his account at a bank in Sydney. During the period between 22 November and 8 December 1950, while he was so employed, the employers sent him to New Zealand to perform services as an inspecting engineer. His salary during that period (£110 in total) was paid like his other entitlements into his Sydney account. The question for the opinion of the High Court of Australia was: in which country was the source of that income, the sum of £110, situated. More specifically, as framed by Williams J, the question was whether in the case of a contract of employment the source of income is the place where the services were rendered or where the services were paid.

(b)  That question was considered and answered in the context of sections 25(1) and 23(q) of the Income Tax and Social Services Contribution Assessment Act 1936-1951 (“ITAA”). Those sections were summarized by Williams J as follows[33]:

“Section 25 (1) of the [ITAA] provides that the assessable income of a taxpayer shall include – (a) where the taxpayer is a resident – the gross income derived directly or indirectly from all sources whether in or out of Australia and (b) where the taxpayer is a non-resident – the gross income derived directly or indirectly from all sources in Australia, which is not exempt income. Section 23 of the same Act provides that the following income shall be exempt from income tax – ‘(q) income derived by a resident from sources out of Australia, where that income is not exempt from income tax in the country where it is derived ...’.”

(c)  The majority of the High Court of Australia concluded, as summarized in the headnotes, that “the sum paid to the respondent in respect of the period of service in New Zealand was income derived by him from a source outside of Australia within the meaning of s.23(q) of the [ITAA]”;

(d)  One can immediately see that the statutory regime in Australia, and the issue before the High Court, were fundamentally different from what we have in Hong Kong and in this appeal. The concept of “income from … any office or employment” was not engaged. Nor was there any section 8(1A)(a) (or its interplay with section 8(1)) which is crucial to the interpretation of the section 8;

(e)  The wording of the ITTA dictated the approach. As observed by Kitto J at p.416-417 of the judgment:

“We are here concerned with a provision, s. 23 (q) of the [ITAA], which uses the word ‘source’, in relation to the derivation of income, in a context completely unaffected by the notion of a ‘possession’. One has not to start, as under the United Kingdom legislation, with the conception that in the case of income from an employment the employment is the source of the income, so that the problem is to attribute a locality to the employment. The Australian Act, in such provisions as ss. 23 (q) and 25, assumes that it is possible to identify, with respect to every amount of income, some activity event or thing which may properly, though metaphorically, be described as the source from which that income has been derived …”

(f)  The ITAA had further a concept which Hong Kong has never had, one of “income from personal exertion”. That concept clearly bore upon the decision of William J, who delivered the main judgment. At page 414, the learned judge observed:

“For the purposes of s.25(1) of the [ITAA] the locality of the source of ‘income from property’ or ‘income derived from property’ must be the place where the property is situated. For the same purposes the locality of the source of income derived from personal exertion in the capacity of employee or in relation to any services rendered surely must be where such personal exertion took place, and the locality of the source of the proceeds of any business where the activities of the business are carried on.”

Along the same line, Dixon CJ also drew a distinction between the position of say a director and an artisan. At page 405, the Chief Justice observed that:

“… it is important to notice that Mr. French. does not occupy an office as for example a director may be considered to do. The case is one, at all events we are so treating it, where month by month by doing his work in this or that place the employee earns his salary. It would I think be impossible to say that an ordinary artisan does not earn his pay where he does his work. Doubtless Mr. French is by no means an artisan but it is by the same reasoning that his case should be adjudged.”

(g)  For the above reasons, I accept Mr Wong’s submissions that French is clearly distinguishable. It is of little assistance in the proper interpretation of section 8 of the IRO. Any suggestion of the 1971 amendments being made to implement and adopt the decision in French is also factually incorrect. I further accept Mr Wong’s submission that Macdougall J was correct in observing that the Australian authorities were of no real assistance.

76.In respect of the 3 English Cases, central to Mr Barlow’s submissions is his submission that “the Goepfert decision in 1987 (following authority upon a differently framed section of the UK Act –instead of directly construing the actual language of section 8”. I have rejected Mr that Barlow’s submissions in that regard. I have analyzed Goepfert and Lee Hung Kwong. Macdougall J and Deputy Judge A To did not simply follow the 3 English Cases. They interpreted the sections themselves. There is hence no need for me to deal further with the 3 English Cases for the purpose of answering Question #1. I will however come back to them when considering Questions #2(1) and #2(2).

E.  Question #2(1)

E.1.  Parties’ stances

77.Mr Barlow summarizes the Appellant’s case on Question #2(1) as follows[34]:

“(1) Both Goepfert and Lee Hung Kwong did adopt and follow Lord Normand’s (2 limbed) analysis[35] in Bray v. Colenbrander, from English common law, namely by:

(a) equating ‘the locality of the source of income’ with ‘the place where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing’; (emphasis added)

(b) except in cases where the place of payment is ‘nominal or pretended or unreal’ (meaning either fiscally contrived or sham), whereupon the test is different, namely the true place of payment is to be determined from: (i) the contract of employment; (ii) the residence of the employer; and (iii) the place where the contract of employment was negotiated and entered into.

(2) As the Board did not find (and were never asked to do so) that the place of payment for the Taxpayer’s employment income was ‘nominal or pretended or unreal’ (or fiscally contrived or sham), the decisions in Goepfert and Lee Hung Kwong (which, unless impliedly overruled, the Board was bound to follow) required the Board to conclude, as a matter of law, that, during the years of assessment concerned, the source of the Taxpayer’s income continued to be New York, N.Y., USA …

(3) Moreover, even had the 2^nd limb of Lord Normand’s analysis (see sub-para. (1)(b) hereinabove) arisen (which was not the case), each of the 3 factors therein was outwith Hong Kong, which also would have required the Board, as a matter of law, to conclude that the source of the employment income was outside of Hong Kong.

(4) However, despite the Board’s adoption of Goepfert and Lee Hung Kwong, their Decision:

(a) did not adopt and apply the ratio decedendi of those decisions (see sub-para. (1) hereinabove);

(b) without any finding that the facts concerning the place of payment of the Taxpayer’s income brought it within Lord Normand’s 2^nd limb, the Board incorrectly ignored the necessity of applying the 1^st limb and then incorrectly misapplied the 3 factors within the 2^nd limb;

(c) instead the Board adopted the Commissioner’s fallacious (and previously discredited at the highest level – see below) argument that, because in the years of assessment the Taxpayer was based in Hong Kong, his ‘employment was located in Hong Kong’ … and therefore all of his employment income, whether derived from services rendered within Hong Kong (which had already been assessed (by applying the time in: time out formula) to salaries tax – which had been paid before the disputed Additional Assessments had been made) or outside of Hong Kong was sourced in Hong Kong (the ‘HK Base Construction’ …) and therefore ‘arose in or was derived from Hong Kong’ …; and

(d) as can be seen from sub-para. (1) hereinabove, the Board did not apply the Goepfert/Bray test.”

78.Mr Wong summarizes the CIR’s case in respect of Question #1(2) as follows[36]:

“The Appellant’s case that Goepfert and Lee Hung Kwong set out a ‘two-limbed test’, whereby the location of the employment is the place of payment (unless a sham) is not supported by the authorities. The authorities expressly say that there are a number of non-exclusive factors. The legislature could not have intended that the place of payment (if not a sham) be definitive.”

79.Central to the Appellant’s case in respect of Question #1(2) is his reliance on the Romer Conclusion, and the proposition that Lord Normand adopted the 2-Limbed Approach in Bray.

80.The following two points may first be noted at the outset:

(a)  In the way Mr Barlow puts it, the first limb of the 2-Limbed Approach is a rigid one. In the absence of sham, the locality of the source of income should be equated with “the place where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing”;

(b)  Mr Barlow further submits that that “contract for payment” is not the “contract for employment”, and in this regard Deputy Judge A To erred in Lee Hung Kwong. I will come back to this.

E.2.  The 2-Limbed Approach not supported by any authority

81.First and foremost, I do not accept that the language and structure of section 8 of the IRO admits of the adoption of the rigid 2-Limbed Approach. I repeat my discussions under Question #1.

82.Nor does the authorities support the existence of the 2-Limbed Approach:

(a)  I reiterate the fact that Question #2 is raised and argued on the basis that Goepfert and Lee Hung Kwong were correctly decided;

(b)  Macdougall J in Goepfert did not propound any 2-Limbed Approach. No sole factor was designated as the decisive one. I have set out the material parts of the judgment. I repeat that the learned judge observed specifically that “it is necessary to look for … where the source of income, the employment, is located ”, and that the Commissioner “is entitled to scrutinise all evidence, documentary or otherwise, that is relevant to this matter”;

(c)  Nor did Deputy Judge A To set down any 2-Limbed Approach or specify any single determining factor. His observations were to the contrary. I have again set out the relevant parts of the judgment. I repeat that the learned Deputy Judge observed that “the test as to the source of income is to look for the place where the income really comes to the employee”, that “regard must first be had to the contract of employment. This must include consideration as to the place where the employee is to be paid, where the contract of employment was negotiated and entered into and whether the employer is resident in the jurisdiction. But none of these factors are determinative” (emphasis added);

(d)  Nor did the House of Lords in Bray lay down any 2-Limbed Approach;

(e)  In Bray:

(i)  Two appeals were heard together;

(ii)  As summarized by Lord Normand:

(1)  in each of the 2 appeals, the respondent, who was resident in the UK, entered into a contract of employment with an employer resident abroad. The contract was in each case entered into in the country of the employer’s residence, and provided for payment of the employee’s remuneration in that country. Substantially the whole duties of the employee under the contract were performed in the UK;

(2)  The Crown assessed each of the respondents under Sch. E of all sums paid to them as remuneration of their employment, and maintained that the respondents were assessable as persons residing in the UK in respect of the whole annual profits and gains accruing from an employment carried on in the UK under Case II of Sch. D[37] which, by the provisions of section 18 of the Finance Act, 1922, become chargable under Sch. E;

(3)  The respondents maintained that they were assessable under Case V of Sch. D and that the measure of assessability is the amount of the actual sums annually received by them in the UK – rule 2 of the Rules applicable to Case V[38]. They claimed the benefit of the express exemption in section 18(1) of the Finance Act, 1922, whereby profits and gains chargeable under Case V of Sch. D remain chargeable under that schedule;

(iii)  Lord Normand then stated the settled law that the word “possession” in Case V covers employment. His Lordship’s explanations in the next 2 paragraphs that follow are helpful in the proper understanding of Bray, and the interplay between the 3 English Cases (part of which Macdougall J also cited in Goepfert):

“But to fall within Case V the ‘possession’, the employment, must be outside the United Kingdom, which means entirely outside the United Kingdom. The Respondents’ case is that an employment is entirely outside the United Kingdom if the place of payment under the contract of employment is outside the United Kingdom, and that the place or places at which the duties of the employment are performed by the employee are irrelevant to the question whether the ‘possession’ is outside the United Kingdom. They further say, and it is admitted, that Bennet v. Marshall so decided. Bennet v. Marshall was decided by the Court of Appeal, and the Special Commissioners, Danckwerts, J., and the Court of Appeal, have all followed it as an authority binding on them in the present cases.

The present appeals are therefore brought for the purpose of bringing under review the ruling of the Court of Appeal (Sir Wilfrid Greene, M.R., Romer and MacKinnon. L.JJ.), in Bennet v. Marshall, that the employee was assessable only under Case V because the place of payment of his remuneration was outside the United Kingdom, and that the fact that some of his duties were performed in the United Kingdom was irrelevant to the question whether the ‘possession’ was wholly outside the United Kingdom. The Court of Appeal’s decision was unanimous and it affirmed the judgment of Lawrence, J., as he then was, in the Court below. In both Courts it was held that the case was concluded by the decision and reasoning of this House in Foulsham v. Pickles. That was disputed by the Crown, and it. is the real point of controversy in this case. The facts in Foulsham v. Pickles were the converse of those in the present cases and in Bennet v. Marshal, for in it the taxpayer was employed abroad by an English company under a contract of employment, which provided for payment of his remuneration in England. This House held that his employment was not wholly out of the United Kingdom. The question debated in Bennet v. Marshall was whether the ratio decidendi of this House in Foulsham was (a) that the place or places where the employee performed his duties were irrelevant to the question whether his employment was wholly outside the United Kingdom, and that the only relevant matter was the place of payment of his remuneration, or (b) that the place of payment was a relevant consideration, without excluding as irrelevant the place or places at which the duties were performed.”

(iv)  Lord Normand then expressed his view that the Romer Conclusion as stated by Romer LJ in Bennett v Marshall accurately explains the ration decidendi in Foulsham;

(f)  I interpose this at this stage. In Goepfert at 899H, Macdougall J observed, in relation to Bennett v Marshall, that:

“To my mind, although their Lordships’ enquiry focused on whether the income was derived from a source outside the United Kingdom, whereas the enquiry under s. 8(1) centres on whether the income is dervied from an employment in Hong Kong, each enquiry involves a consideration of the same factors. In essence, the question is the same in both cases.”

With the analysis of the UK legislative regime and the Lord Normand’s explanations (as discussed above) in mind, I agree;

(g)  In relation to the Romer Conclusion, and in particular in relation to the term “contract for payment” therein, Deputy Judge A To expressed his views in §24 of Lee Hung Kwong. I have reproduced the relevant part of that paragraph above. Most relevant for the present discussion, the learned Deputy Judge observed, and I repeat, that “where the source of income is from an employment, the locality of the source of income is the place where the contract for payment is deemed to have a locality. By ‘contract for payment’, Lord Normand must mean the contract of employment based on which the employee earned his payment and not necessarily the place where the payments are made”;

(h)  Mr Barlow submitted that Deputy Judge erred in law in understanding the “contract for payment” as meaning “contract of employment”;

(i)  In my view, here lies one major problem with Mr Barlow’s submissions on Question #2(1). The context has to be borne in mind. The discussion is in the context of an employment being the source of the income. As Sir Wilfred Greene MR explained in Bennett v Marshall and I repeat, “Employment arises from a contract of employment .... I should have thought, therefore, that in the case of employment the contract is the first thing which must be looked at”;

(j)  In my view, it is totally unrealistic for Mr Barlow to try to ignore the context, ignore the purpose of the exercise, and ignore the contract of employment which should be the focal and starting point, but then try to look at and look for a separate “contract for payment”;

(k)  In most employment situations, there will not be a separate “contract for payment”. Any “contract for payment” will be part and parcel of the contract of employment. In those cases, it would be in vain to look for any separate contract for payment;

(l)  The term “contract for payment” might have been used in the 3 English Cases due to the ways in which the issues therein were framed, and because of the issue of “remittance”[39]. But that should not in my view be taken to mean that one single determining factor of “contract of payment” has been laid down;

(m)  I respectfully agree with the observations of Deputy Judge A To on the meaning the term “contract for payment” in §24 of Lee Hung Kwong. I reject Mr Barlow’s submissions that the learned Deputy Judge erred there;

(n)  In my view, properly understood, neither the Romer Conclusion nor Lord Normand in Bray adopted any single determining factor for the Geographic Pre-requisite. The question remains the deemed locality of the contract of employment. The deemed locality of the contract for payment, or where the payments for the employment are paid, may mean the same thing. But there is no single determining factor – and see the discussions in Goepfert and Lee Hung Kwong cited above;

(o)  Mr Barlow also relies on Lord Normand’s observations in p.155 of the judgment (cited by Macdougall J in Goepfert which I have reproduced (and emphasized by underlining) in §25(h) above) in his attempt to establish the existence of that 2-Limbed Approach. That passage does not assist Mr Barlow at all. Lord Normand therein in fact stated that “[n]othing … of what follows in this opinion in any way touches a case where the designated place of payment is challenged as nominal or pretended and unreal”;

(p)  Lord Normand’s speech hence does not touch on any sham case, clearly does not lay down any determining factors in those case, and definitely not the 3 factors which Mr Barlow has identified as being exhaustive under the 2^nd limb;

(q)  In the course of the oral hearing, Mr Barlow updated his written submissions by submitting that those 3 factors under the suggested 2^nd limb are laid down by Deputy Judge A To in Lee Hung Kwong. I reject those submissions. That is simply not the effects of the Decision.

83.For the above reasons, I reject the Appellant’s case on the existence and formulation of the 2-Limbed Approach.

E.3.  The “Hong Kong Base Construction”

84.In relation to the alleged “HK Base Construction”, the Board in §71(5) of the Decision summarized the CIR’s submissions under the heading of “Base of the employment/employee.” In §90 of the Decision, the Board stated that:

“Although Mr Lam for the Revenue made submissions that this Board should consider ‘the base of the employment/employee’ as an additional factor, this Board is of the view that in the circumstances of this Appeal, the matters underlying his submission on ‘the base’ are part and parcel of the background, intent, terms and effect of the contract of employment that this Board has considered above.”

85.I accept Mr Wong’s submissions that the Board has in fact rejected the “Base of the employment/employee” submissions, that the Board’s conclusion was based principally on the finding that the employment contract was most connected to Hong Kong, and that the Appellant’s criticism in this regard is based on a mis-reading of the Decision.

E.4.  Conclusion on Question #2(1)

86.I have been reminded by Mr Wong[40] as being trite that in the absence of a specifically identifiable error of law, the court should not disturb the Board’s Decision unless it is contrary to the true and only reasonable one, that the weight to be placed on evidence is a matter for the Board and not the court, and that the Appellant bore the burden of proof before the Board. I agree.

87.For the above reasons, I answer Question #2(1) in the negative, in favor of the CIR.

F.  Question #2(2)

F.1.  Parties’ stance

88.In gist, Mr Barlow submits that “the Board additionally erred in law in failing to conclude that their findings of facts required the legal conclusion that the Employer was resident in London (not Hong Kong)”[41], that “the Board failed to apply the principles endorsed by our Court of Appeal in Hui Yin Sang [v Tsoi Ping Kwan [2012] 2 HKLRD 1085]”, and that “[i]n particular since the Board had found that the Employer was a holding company (i.e. a non-trading company … whose formal ‘corporate activities’ were all carried out in London (due to its being a non-trading holding company with an AIM listing in London), in law, the Employer’s central management and control was in London”[42].

89.Mr Wong summarizes the CIR’s case as follows[43]:

“The Appellant’s case that the Board made an error of law is based on misstatements of the Board’s actual findings of fact. It is trite that the location of a company’s residence is determined by a range of factors, and that the weight to be given to each factor is a matter of judgment. This is eminently a matter for the fact-finding tribunal and the Appellant cannot show, and has not shown, that the Board’s decision is contrary to the only true and reasonable conclusion.”

F.2.  The Board’s reasoning

90.The Board was aware of Hui Yin Sang. It referred to it expressly on a number of occasions – in particular in §86. The Board considered and weighed the activities in Hong Kong and London, the two competing places of residence – §§87-88.

91.One basis of Mr Barlow’s criticism is that “the Board had found that the Employer was a holding company (i.e. a non-trading company … whose formal ‘corporate activities’ were all carried out in London”. But, as Mr Wong has pointed out, the Board did not only make those findings, but has found more (some based on agreed facts):

“Green Dragon’s principal activities were acting as a holding company and providing financing and management services to its subsidiaries.” [§9(2)(b) of the Decision]

“…[T]his Board finds that some administration for Green Dragon was carried out in Hong Kong as evidenced by the 2010 Announcement referred to in paragraph 77(ii) above; the 2010 Notice of AGM referred to in paragraph 77(ii) above; the minuted attendance/participation of Betty Cheung in three Board meetings held between September 2006 and March 2007; and the statements made in the 2006, 2007, 2008, 2009 and 2012 annual reports of Green Dragon that the HK Address was the principal place of business of Green Dragon.” [§86(5) of the Decision]

“The place where the company’s most significant assets were: … This suggests at least in part Hong Kong.” [§86(8)(iii) of the Decision]

“… (iii) It was publicized that Green Dragon’s principal place of business was in Hong Kong, as this is shown in the annual reports, the audited financial statements, and the 2009 Announcement and the 2010 Notice of AGM; (iv) Insofar as the two principal activities of Green Dragon were concerned, on the evidence before this Board, Hong Kong was the location where part of the financing services for the subsidiaries and the provision of management services to the subsidiaries were carried out; (v) The executive director, chairman and CEO of Green Dragon, the Taxpayer, was resident in Hong Kong. His residence was also decisive of the ascertainment of the location of Green Dragon’s most significant assets, the entrepreneur or executive director who sought business opportunities and presented them to the Board and the provider of management services of Green Dragon to its subsidiaries;” [§88(iii), (iv) and (v) of the Decision]

92.In the light of the above, I find that the Board was entitled to come to the conclusion as it did.

F.3.  Conclusion on Question #2(2)

93.For the reasons set out above, I answer Question #2(2) in the negative in favour of the CIR.

G.  Overall disposition

94.For the reasons set out above, this Court answers all three questions (Questions #1, #2(1) and #2(2)) in the negative in favour of the CIR.

95.I order on a nisi basis that the Appellant shall bear the costs of the appeal (including the costs of and occasioned by the application for leave which I ordered to be in the cause of the appeal), with certificate for 2 counsel (where 2 were engaged, whether for advice or appearance), to be taxed if not agreed.

Mr Barrie Barlow SC instructed by KB Chau & Co, for the Appellant

Mr Stewart Wong SC (on both dates), leading Mr Julian Lam (on 27 September 2023), instructed by Department of Justice, for the Respondent