Profits Tax - Management fee
First, please
click here
to read tax guide:
excessive remuneration. In fact, these two topics are related.
Management fee
paid to a building management company for managing the premises used
by the taxpayer for production of assessable profits is deductible.
This is seldom a tax problem.
What is at issue on this topic is
the management fee paid to a closely-connected “service company” for
managing an unincorporated business. This is because such payments
are often used to avoid tax. See the following example.
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An
unincorporated business ABC & Co. made a $2,000,000 profits. To
reduce the assessable profits, the business owners set up
another unincorporated business XYZ & Co. to manage its
business. Then, ABC paid $1,500,000 management fee to XYZ, thus
reducing ABC's assessable profits to $500,000. Then, XYZ paid
the business owners and their relatives remuneration and
provided them free accommodation and a lot of non-cash benefits.
With the personal allowances, graduated tax rates, non-taxable
benefits... etc. under Salaries Tax, their total tax
liabilities were dramatically reduced. |
If the tax
benefit is considerable, the Revenue will argue that the management
fee is too excessive to justify a deduction because it is not
incurred for the production of assessable profits, but for the
avoidance of tax. In such case, the Revenue may invoke
anti-avoidance law to counteract the tax
benefits.
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