Watson Ltd (WL) was incorporated and based in China. It provided materials sourcing services to customers in Mainland China and Hong Kong and had derived sourcing service fee income in this regard for all services done in Mainland China and Hong Kong (Sourcing Fee-1). WL has engaged its wholly owned subsidiary, namely Simpson Ltd (SL) in Hong Kong to provide services to Hong Kong customers for a service fee (Sourcing Fee-2). WL and SL used a software system owned by an independent Hong Kong base
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