IRD expresses its views on the source of income for different e-commerce business models

In the recently published minutes of the 2023 annual meeting between the Inland Revenue Department (IRD) and the Hong Kong Institute of Certified Public Accountants, the IRD reiterated the general taxation principles for e-commerce stated in Departmental Interpretation and Practice Notes No. 39 (Revised) (DIPN 39).

DIPN 39 states that where e-commerce is involved, the proper approach to be taken in determining the locality of the profits is what were the person’s operations which produced the relevant profits and where those operations took place.

In the annual meeting, the IRD reiterated that the location of a server alone would not determine the locality of profits. The proper approach is to focus more on the core operations that had effected the e-commerce transaction to earn the profits in question and the place where those operations had been carried out rather than on what had been done electronically.

Determining the source of income derived from e-commerce could be complicated in certain situations. Where necessary, clients should seek professional tax advice or contact their tax executives.