Section 9A of Inland Revenue Ordinance is to combat avoidance arrangements involving the use of service companies to disguise what are in substance master-and-servant employment relationships. It provides that if a “relevant person” pays remuneration for services rendered by a “relevant individual” to a company controlled by that individual, the remuneration is deemed to be employment income and assessed as such on that individual.
Section 9A applies if the following conditions exists:
A prescribed activity under (a) is one prescribed in the Gazette by the Revenue under Section 9A (6). So far, the has been no such prescribed activity.
It is anticipated that Section 9A affects many business arrangements that are done without a tax-avoidance purpose. To restrict its effect, the law provides that a business arrangement satisfying all the following conditions falls outside its scope.
Besides, the Commissioner of Inland Revenue may in his discretion exclude a business arrangement from Section 9A if he is satisfied that at all relevant times the carrying out of the services under the agreement is not substantially in the nature of an office or employment. This provides an escape route for those arrangements failing to meet all the above conditions.
Section 9A is invoked when tax avoidance scheme is suspected. In other cases, the IRD will look at such factors as master and servant relationship, control, organization, economic risk… etc. to determine the question of contract of service versus contract for service.