3 Mr Hui and GA Ltd
(a) Based on the proposed changes of appointment terms given, it is likely that the consulting company established by Mr Hui
would be regarded by the IRD as a Type I service company and the provisions of s.9A would be applied to determine whether
the new appointment constitutes a contract for service (i.e. an independent contractor), or a contract of service (i.e. an
employment). If s.9A applies, the arrangement would be ‘looked through’ such that the relationship between GA Ltd (GAL)
and Mr Hui would continue to be treated as an employer–employee relationship. Any payment made to the consulting
company would be deemed as employment income of Mr Hui who provided the employment services to GAL in return for
the income.
For s.9A to successfully apply, the following conditions must be satisfied:
(i) There is an agreement – in this case, the service agreement between GAL and the consulting company will be the
relevant agreement.
(ii) There is a ‘relevant person’ – in this case, GAL is the relevant person who carries on business in Hong Kong and who
has entered into an agreement for the provision of services by Mr Hui in return for a payment.
(iii) There is a ‘relevant individual’ – in this case, Mr Hui is the relevant individual who provides services to the relevant
person as required by the relevant agreement.
(iv) The remuneration for the relevant individual’s services is paid to a service company which is under the control of the
relevant individual – in this case, the remuneration for Mr Hui’s services is to be paid to the consulting company, which
is presumably wholly owned and controlled by Mr Hui. Control is defined under s.9A to mean the power of a person to
secure that the affairs of the company are conducted in accordance with the wishes of that person either through the
holding of shares or relevant voting power. In this case, although the question has not clearly stated the power of
Mr Hui, the fact that Mr Hui is required to establish the consulting company and ensure that the company enters into
the proposed arrangement with GAL would be sufficient to demonstrate the power or control by Mr Hui over the
consulting company.
If the above conditions are satisfied, the arrangement is regarded as a ‘disguised employment’ between Mr Hui and GAL.
However, s.9A can have no application to deem such an employer–employee relationship if ALL of the following criteria are
satisfied in relation to the appointment terms:
(1) Neither the agreement in question nor any related undertaking provides for remuneration to include annual leave,
passage allowance, sick leave, pension entitlements, medical payments, accommodation or any similar benefit, or any
benefit (including money) in lieu thereof – in Mr Hui’s case, the service agreement not only specifies the monthly
remuneration but also the annual profit-sharing bonus as well as the maximum number of days of annual vacation.
(2) If the agreement, or a related undertaking, requires any of the services to be carried out personally by the relevant
individual, that the relevant individual also carries out similar services for persons other than the relevant person during
the term of the agreement – in this case, Mr Hui is the designated individual to provide services to GAL but it is silent
as to whether Mr Hui is allowed to provide similar services to other parties.
