- 12 Marks
Question
The following relates to information of two companies, both resident in Ghana, for 2021 year of assessment with the basis period January to December each year:
| Company A (GH¢) | Company B (GH¢) | |
|---|---|---|
| Income | 10,000,000 | 12,000,000 |
| Cost of Sales | (4,200,000) | (4,400,000) |
| Gross Profit | 5,800,000 | 7,600,000 |
| Less: Operating Costs | (4,900,000) | (3,000,000) |
| Chargeable Income | 900,000 | 4,600,000 |
Additional information:
- Dividend paid to each company by Company C, another resident company in Ghana, is as follows:
- Company A: GH¢200,000
- Company B: GH¢230,000
Both companies hold shares in Company C: - Company A holds 25%
- Company B holds 30%
- Contribution towards Kanzo Football Club, a local football club, amounted to GH¢80,000 (Company A) and GH¢100,000 (Company B). Both companies could not show government approval for the contribution.
- Two vehicle engines, each costing GH¢80,000, were purchased by both companies. Pool 2 had a written down value of GH¢200,000.
- Company B paid foreign employees’ tax to the UK, as the employees were from the UK.
Required:
i) What is the tax implication of holding 25% or more of the voting power of another resident company? (1.5 marks)
ii) What is the position of the tax law on tax payment made by Company B to the UK? (1.5 marks)
iii) What is the total tax payable by both companies? (8 marks)
iv) What is the total tax expenditure? (1 mark)
(12 marks)
Answer
i) The tax implication of a resident entity holding 25% of another resident entity is that,
any dividend declared is exempt from tax. This does not, however, apply if the paying
company is into mining and mineral operations or petroleum operations.
(1.5 marks)
ii) Income accrued and derived by non-resident is payable in Ghana and the global
income of resident person is payable in Ghana. It is therefore wrong for PAYE
payment of Citizens of United Kingdom be payable in United Kingdom. It has to be
paid in Ghana.
(1.5 marks)
iii) Computation of tax payable and Tax Expenditure
Year of assessment 2021
Basis period January 1, 2021 to December 31, 2021
- Tags: chargeable income, Dividends, Foreign tax payment, Tax computation, Tax law
- Level: Level 3
- Topic: Business income - Corporate income tax, Tax planning
- Series: AUG 2022
- Uploader: Kwame Aikins