The fundamental source rule was laid down by the landmark case The Commissioner of Inland Revenue ("CIR") v. Hang Seng Bank Ltd Co. (1991) 1 AC 306.
Lord Bridge of Harwich of Privy Council held that the source of profits is a question of fact depending on the nature of transaction and stated the broad guiding principle in determining the source is that One looks to see what the taxpayer has done to earn the profit in question and where he has earned it.
[3]The statement is widely retrieved in the context of Taxation in Hong Kong and other jurisdictions and reconfirmed in subsequent cases, such as HK-TVB International Limited v. CIR (1992) 2 AC 397.
To reduce the complexity in determining the source of profits, the Inland Revenue Department of Hong Kong ("IRD") issued Departmental Interpretation and Practice Note No.
[13][14] On the contrary, the amount which the proceeds received at the time of sales over the allowance claimed will be taxable as "balancing charge".
[15] Types of plant and machinery that are tax-depreciable and their respective rates (for annual allowance only, see below) are set out in a prescribed schedule.
Tax losses can be carried forward to set off the profits in the future years until fully absorbed but not backward.
[21][22] It also implies that a statement of loss, which grants no objection option to the taxpayer, has a different status with the notice of assessment.
[23] On the contrary, a case of tax loss, even agreed by the CIR in previous year, can be re-opened at any time in the future since it is technically not an assessment.