Can a company that does not pay taxes in Hong Kong benefit from the tax treaty?

A French company underwent a tax audit, following whichadministration issued a notice of assessment regarding withholding tax.

The company was accused of withholding tax on franchise and trademark license fees paid to a Hong Kong-based company by applying the rate specified in the tax treaty.

Theadministration that:

• The Hong Kong-based company was not subject to any taxes in Hong Kong because it was exempt from tax on its offshore income

• She wasn't involved in any local activities

• It was listed as "dormant" and inactive

The Administrative Court of Appeal, to which the case was referred, will nevertheless rule that the exemption for foreign profits does not preclude the application of the tax treaty.

The decisive factor is tax liability. The fact that the company has not paid the tax has no bearing on the application of the treaty.

The Court therefore finds that the company’s dormant status—which does not demonstrate that it is no longer subject to taxation in Hong Kong—does not preclude the application of the treaty.

The Court therefore upholds the annulment of the tax assessment.

CAA Lyon, March 3, 2026, No. 24LY00954

This monitoring service is provided by Mispelon Avocat, a law firm specializing in tax audits and tax litigation. You can stay updated by subscribing to the newsletter via this link.