Decision that interest expenses incurred on loans for purposes of dividend payment deductible

The Hong Kong Court of Final Appeal issued its decision in Zeta Estates Limited v. Commissioner of Inland Revenue on 29 March 2007 and held that interest on shareholder's loans to fund the dividend payments was deductible for profit tax purposes.

(a) Facts. Zeta Estates Limited (ZEL) was a joint venture engaged in the development and trade of real estate in Hong Kong. ZEL declared HKD 400 million worth of dividends in 1998/99, and in order to pay this dividend …