HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
Kong stamp duty, such transfers in Hong Kong may attract stamp duty. Practitioners typically structure the transactions to avoid stampable documents where possible or to minimise the taxable base. Profits tax may arise if the SPE is deemed to be carrying out business in Hong Kong and earning assessable profits. Structuring the SPE outside Hong Kong, ensuring the SPE is purely a pas - sive holder of assets, or relying on offshore tax resident status may mitigate this risk to some extent. Tax rulings or advice from the Hong Kong Inland Revenue Department (IRD) may also be sought to clarify the tax treatment of complex struc - tures. Tax advice in Hong Kong is normally given by accountants. 7.5 Obtaining Legal Opinions Law firms in the applicable jurisdictions (com - monly the jurisdictions of the SPEs and the origi - nator/servicers) might be appointed to provide tax opinions in securitisation transactions, espe - cially on cross-border deals. These opinions usually cover the applicability of profits tax, with - holding tax, and stamp duty to the transaction. For Hong Kong tax opinions, the material con - clusions typically confirm the following. • The SPE is not subject to profits tax in Hong Kong if it is structured as a passive offshore entity and does not carry out business in Hong Kong. • No withholding tax applies to interest or divi - dend payments made by the SPE to foreign investors. • No stamp duty is applicable – if the underly - ing receivable assets being assigned or sold to the SPEs are located in Hong Kong, but
do not involve the transfers of Hong Kong property or shares. Qualifications often include assumptions about the SPE’s residence, activities, documentation, and reliance on the tax laws in force at the time. Specific tax opinions may also be obtained from Hong Kong accounting firms such as the Big Four firms. 8. Accounting Rules and Issues 8.1 Legal Issues With Securitisation Accounting Rules Where the originator and the SPE are Hong Kong entities, legal issues may arise in determining whether the transfer of assets to the SPE consti - tutes a “true sale” under Hong Kong law. A true sale ensures that the assets are legally isolated from the originator’s insolvency risk, which is a key requirement for off-balance-sheet treat - ment under applicable accounting standards (eg, HKFRS 9). Another issue is whether the SPE should be consolidated with the originator for accounting purposes. This depends on whether the origi - nator retains control over the SPE or significant risks and rewards of the transferred assets. Legal practitioners play a critical role in draft - ing and structuring transaction documents to meet these accounting objectives, aligning with the accounting standards. Ultimately, whether a securitisation transaction can receive off-bal - ance-sheet treatment from the originator’s group is subject to the auditor’s accounting analysis. 8.2 Dealing With Legal Issues Legal practitioners address these legal issues by structuring the transaction to meet “true sale”
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