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Recognition of DCR's Ratings
for Profits Tax Concession Purposes

The Hong Kong Monetary Authority (HKMA) announced today (16 February 2000) that the ratings of Duff & Phelps Credit Rating Co. (DCR), other than those assigned to its shareholders who own 1% or more of its issued share capital, the related companies of such shareholders and the debt instruments issued or guaranteed by them, will be recognised with immediate effect by the HKMA for the purpose of the profits tax concession scheme under section 14A(4)(b) of the Inland Revenue Ordinance. The minimum credit rating requirement applicable to DCR's ratings will be BBB-. "In evaluating the ratings assigned by a rating agency, the HKMA is concerned that the agency should be seen to be independent from the entities it rates. Normally, the HKMA does not recognise any ratings assigned by the agency to its shareholders or their related companies. Since DCR is a publicly-owned company listed on the New York Stock Exchange, some flexibility is given by setting the minimum threshold for disqualification at 1%. Related companies are defined here as the holding company, the subsidiary companies as well as the subsidiary companies of the holding company of any shareholders," an HKMA spokesperson explained. Under the profits tax concession scheme, which came into effect on 24 May 1996, interest income and trading profits derived from eligible debt securities are entitled to a concessionary tax rate equal to 50% of the prevailing profits tax rate. To be eligible, a debt issue should, among other criteria, possess a minimum credit rating from a rating agency recognised by the HKMA. In addition to DCR, five other credit rating agencies have been recognised by the HKMA since May 1996 for the purpose of the profits tax concession scheme:

Recognised rating agency Minimum rating required
Fitch IBCA BBB-
R&I BBB+
TBW BBB+
Moody's Baa3
S&P's BBB-

The HKMA reserves the right to make adjustments to the list of recognised rating agencies and the minimum rating requirements from time to time.

Hong Kong Monetary Authority

16 February 2000

Last revision date: 1 August 2011
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