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Following is a question by the Dr Hon Kenneth Chan and a written reply by the Acting Secretary for Education, Mr Kevin Yeung, in the Legislative Council today (June 18):
Question:
In April last year, NAE Hong Kong Limited (NAE) was allocated vacant school premises in Lam Tin by the Education Bureau (EDB) for setting up an international school. It has been reported that while the school sponsoring body and the international school concerned are institutions exempt from tax under section 88 of the Inland Revenue Ordinance (IRO) (Cap. 112), the parent company of NAE is currently seeking a public listing. In this connection, will the Government inform this Council:
(1) whether EDB has rules or guidelines at present for regulating the financial management and use of funds of schools and their sponsoring bodies which are exempt from tax; if it does, of the details; if it has not, whether it will consider formulating such rules or guidelines; if it will do so, of the specific plans; if not, the reasons for that;
(2) whether NAE has informed EDB of the public listing plan of its parent company; if it has not, whether EDB has assessed if NAE has breached the relevant rules or guidelines of EDB; if the assessment outcome is in the affirmative, of the details and the follow-up actions taken by EDB;
(3) given that when granting the aforesaid school premises at nominal rent, the Government made the requirement that the international school operating on the premises and its sponsoring body must be institutions exempt from tax under section 88 of IRO, whether EDB will take measures to ensure that the international school and its sponsoring body continue to operate on a non-profit-making basis; if it will, of the details; if not, the reasons for that; and
(4) whether it has studied if the public listing plan of the parent company of NAE will affect the eligibility of NAE for tax exemption in Hong Kong; if the study outcome is in the affirmative, of the details; if the study outcome is in the negative, the reasons for that?
Reply:
President,
Under the prevailing policy, international schools and their school sponsoring bodies (SSBs) should be organisations exempt from tax under section 88 of the Inland Revenue Ordinance (IRO) (Cap. 112) (tax exemption status) when the Government officially allocates to them school premises or greenfield sites for operation of international schools. Our response to the four parts of the question raised by the Dr Hon Kenneth Chan Ka-lok is as follows:
(1) and (3) It is a requirement for both the SSBs and the schools allocated vacant school premises or sites for international school development to acquire the tax exemption status, and to include in their Memorandum and Articles of Association (M&A) standard provisions to ensure that its income and property must be applied solely towards the promotion of objects of the association (one of which shall be to establish and maintain a non-profit-making school or schools), and that no portion of the income and property shall be paid or transferred directly or indirectly, by way of dividend, bonus or otherwise howsoever to members of the association. In addition, the Education Bureau would enter into a Service Agreement with the SSB of the relevant international school. The Service Agreement stipulates that both the school and its SSB shall at all times during the terms of the Service Agreement be organisations exempt from tax under section 88 of the IRO. Furthermore, they are required to submit their audited accounts to the Bureau annually and to explain their financial position, if required. Should the SSB commit any material breach of the provisions of the Service Agreement, the Bureau is entitled to terminate or not to renew the Agreement, and resume possession of the premises.
The international school to be operated at the vacant school premises in Lam Tin, namely the Nord Anglia International School, Hong Kong Limited (the School), and its SSB, Nord Anglia School (Hong Kong) Limited, are on the list of institutions and trust which are exempt from tax under section 88 of the IRO. The aforementioned provisions have been incorporated in their M&A and the relevant Service Agreement.
(2) The SSB of the School did not mention the plan for Nord Anglia Education to launch an initial public offering (IPO) when it was allocated the school premises and when it entered into a Service Agreement with the Education Bureau. In December 2013, in response to media enquiries in relation to Nord Anglia Education's plan on IPO, we enquired, and Nord Anglia Education confirmed, that there was no plan to change the tax exemption status and the M&A of the School and its SSB. In February 2014, Nord Anglia Education informed us that it had submitted an application in relation to a potential IPO on the New York Stock Exchange, and reaffirmed that there would be no change to the tax exemption status and the M&A of the SSB and the School in Hong Kong.
(4) Given that income and properties of the organisation which was allocated school premises must be solely applied for furthering its objects stated in its M&A and not be distributed to its members, we consider that the listing of Nord Anglia Education on the New York Stock Exchange has no implication on the school to be operated at the allocated premises in Hong Kong (Nord Anglia International School, Hong Kong Limited), its operation and its SSB. Through the Service Agreement framework, we would closely monitor the activities of the School and the SSB to ensure compliance with the requirements in the Service Agreement and M&A.
In addition, to protect public revenue, the Inland Revenue Department (IRD) will from time to time conduct reviews on tax-exempt entities under section 88 of the IRO. Having regard to the circumstances of each case and make reference to information obtained from various channels (such as newspapers, magazines, internet, etc.) the IRD will call for the relevant tax-exempt entity's accounts, annual reports, other relevant documents and information (including details of its activities held) to ascertain whether its objects and activities are in compliance with the tax exemption status under section 88 of the IRO. If there is evidence of irregularities, the IRD would request the entity to supply further information for considering whether its tax exemption status should be maintained or withdrawn.
Due to the secrecy provision in the IRO, the IRD is unable to divulge information of any tax cases to third parties or make comments on individual cases.
Ends/Wednesday, June 18, 2014
Issued at HKT 13:20
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