Apportionment of profits and expenses
For manufacturing profits or service fee income involving substantial activities, both inside and outside Hong Kong, apportionment of profits is appropriate. In contract processing cases, a 50:50 basis of apportionment is applied as the norm, in view of the contractual conditions imposed on the parties to the arrangement. For other cases where apportionment is appropriate, the basis applied will depend on the facts of the case.
When apportionment is applied, it may lead to the question of how indirect expenses are to be allocated. Briefly speaking, when these expenses contribute to both Hong Kong and offshore profits they should be apportioned on the basis of the ratio that Hong Kong and offshore profits bear to total profits.