Honson Pic, a UK-based manufacturing company, is planning to build a new processing facility in Ghana. The Chief Executive Officer in a meeting with Management needs to decide whether to cite the facility in Accra or in Kumasi. Market intelligence has no preference for citing the facility either in Kumasi or Accra since information gathered indicate that business activities would largely be same in Kumasi and Accra for the next 10 years.
The following forecast information is relevant for the decision-making process being considered by management.
Kumasi
Accra
GH¢
GH¢
Required: i. Calculate Hamson Plc’s income tax liability for each proposed location for the first year. ii. Would you advise Hamson Plc to consider citing the facility in Nsawam, taking into consideration the close proximity of Nsawam to Accra? iii. Discuss three (3) non-tax factors that Hamson UK Plc may consider in the decision-making process to locate the facility either in Kumasi, Accra or elsewhere in the country.
b). With reference to the Income Tax Act, 2015 (Act 896) explain the following: i. Private Ruling issued by the Commissioner-General: (2 marks) ii. Conditions under which a Private Ruling will be binding on the Commissioner-General and on the person to whom the Private Ruling is issued.
The VAT Act, 2013 (Act 870) accepts that tax consultants may act in a representative capacity for and on behalf of the substantive taxpayer. This provision in the law encourages and accepts the professional development of private tax practitioners but lays down the specific parameters which would qualify such professionals to act as taxpayers’ representatives.
As the Tax Partner for ABC Practice Firm, a new entrant of the firm has approached you with a request to educate him on the types of persons who can act in a representative capacity for an on behalf of the taxpayer.
Required a) With reference to the provisions of Act 870, specify the categories of persons who qualify to be declared by the Commissioner-General as a representative person of: i. a Company; ii. a Local Authority? b) What are the responsibilities of the tax representative of a taxable person?
a) As a Tax Consultant, you receive a note from Mr. Emilio Ditto, the Managing Director of a company based in the United Kingdom seeking to expand its operations in Africa through the opening of an office in Accra. He is interested in discussing with you details of some aspects of the VAT regime in Ghana particularly, the basic VAT concepts on the following:
(i) Under what circumstances can a VAT-registered person issue a Credit Note to cancel or amend a VAT invoice?
(ii) What are the tax liability implications for a VAT-registered person who issues a Credit Note to a customer for a supply that was made in a previous tax period?
Required:
Provide a brief for Mr. Emilio Ditto giving your responses to the issues raised above, with reference to the VAT Act, 2013 (Act 870) as amended.
b) Under the provisions of the Excise Duty Act, 2014 (Act 878), the Commissioner-General may, based on any information available, make an assessment of the amount of excise duty payable by a person.
Required:
State four (4) different circumstances under which the Commissioner-General may exercise the discretion to make an assessment of the excise duty payable by a person.
a) In recent times the export business community has increasingly expressed concern about the issue of duty drawback management by the Ghana Revenue Authority (GRA), particularly undue delays and non-payment of duty drawback claims as accrued over the years.
As an expert tax consultant, you have been invited by the Ghana National Chamber of Commerce for a technical meeting with representatives of the business community on the duty drawback regime.
You are required to prepare a brief paper for discussion at the meeting covering the following areas:
i) An explanation of the term “drawback” as prescribed under the provisions of the Customs Act, 2015 (Act 891), including the two different categories of duty drawback that may be paid by the Commissioner-General.
ii. Under what circumstances will goods be deemed to have been exported for drawback purposes as prescribed under Act 891?
b) Corncob Industries Ltd. a company based in the Central Region of Ghana which processes agricultural products is contemplating diversifying its product lines to take advantage of an identified market potential for a particular maize-based cereal. This will require:
Retrofitting one of their production machines which will enhance its value and performance by about 75%.
Repairs to the equipment used for packaging the products. This will enhance its value by approximately 10%.
Servicing of a component of the sterilization unit which is still under the manufacturer’s warranty.
Management of the company has concluded discussions with the manufacturer of the machinery, equipment and sterilization unit based in France to undertake the retrofitting, repairs and servicing, if Corncob Industries Ltd. can have the items shipped to their factory in Milan, Italy for the purpose.
Alternatively, the manufacturer’s technicians may be brought over to Ghana with the necessary materials to undertake the retrofitting and repairs at the factory premises of Corncob Industries Ltd. Management of Corncob Ind. Ltd. is not certain of the Customs implications of shipping the items out to Italy for the works, which will take four weeks and subsequently re-importing the processed items into the country.
Required:
With reference to the Customs Act, 2015 (Act 891), explain to Management of Corncob Industries Ltd. details of the customs procedure for re-importation of goods after outward processing and the related liability to customs duty, with respect to the following issues:
i. condition under which the outward processing procedure may be used.
ii. period for discharge of the outward processing procedure.
iii. import duty liability on the goods when re-imported into Ghana after processing abroad.
a) Tanji Enterprises Ltd. operates a Fuel Filling Station and a huge Supermarket in Tamale within the same premises. A joint tax audit team from the LTU Office visited Tanji and noted that Tanji supplies taxable and non-taxable goods and services to customers but fails to notice the split distinction between these services. The VAT team therefore has disallowed some claims and apportioned others to reflect the true VAT claimable.
Required:
i. Explain the VAT rules for goods supplied on sale or return.
ii. Discuss the apportionment of input tax for taxable and exempt supplies.
(b).Required:
Discuss the VAT rules on the timing of supply for the following:
i. Goods or services applied to own use, gifted, or supplied under hire purchase or finance lease.
ii. Continuous or metered supplies like electricity.
iii. Goods supplied under a hire purchase agreement or finance lease.
iv. Goods or services supplied under rental agreements or periodic payments.
(a). Dr. Ababio discusses an engagement she recently accepted with an investment banker with you for advice. She indicates that one of the recruiting inducements that convinced her to accept the position is a $300M loan from her employer. She will receive the loan proceeds on her first day of work and must sign a note to repay the loan plus accrued interest in five equal annual installments.
The employer will forgive any amount of the unpaid debt if Dr. Ababio dies, becomes disabled, or is terminated from employment through no fault of her own. Dr. Ababio’s contract provides that the employer will pay an annual bonus equal to each loan repayment. The contract stipulates that the bonus must be applied to the repayment of her loan.
Required:
i) Advise Dr. Ababio on the implications, if any, of this engagement provisions.
ii) Discuss any three provisions in the Tax Act which will support the position the Commissioner will take in respect of the taxability or otherwise of this engagement provision.
(b). The Free Zone Act declares a 10-year tax holiday for Free Zone Operators. Sweet Entities Inc. desires to set up in the Free Zone enclave but requires an understanding of the practical tax concessions granted to free operators. To this effect, the Tax Director of Sweet Entities Inc. requires that you do a practical presentation of the flow of the corporate tax-exempt concession as extended to the operator. He therefore provides you with the following business forecast for the first 10-year period as follows.
All figures in $M
Year
1
2
3
4
5
6
7
8
9
10
Adjusted Profit
10
60
150
500
1,000
1,000
1,000
520
600
620
Capital Allowance
1000
600
300
150
50
20
20
600
340
200
Compute the tax position, if any, of Sweet Entities Inc. for the exempt period.
Although tax planners have the liberty to devise schemes which reduce the tax liability of their clients, the Income Tax Act, 2015 (Act 896) contains provisions which limit tax planning schemes.
Required:
Identify any three (3) anti-avoidance provisions in Act 896 and discuss how each of these provisions places a limitation on the ability of a person to engage in tax planning.
As part of the post qualification requirements of The Chartered Institute of Taxation, you have been invited to do a presentation on the topic “Venture Capital Fund” to a select group of business men, tax professionals, financial institutions and students.
Invitation
Members of the Ghana Institute of Taxation and the Institute of Bankers wish to use this opportunity to strengthen the cordial relationship subsisting between them and have therefore invited you to do a presentation on the tax effects of Venture Capital Operators as compared with that of the traditional financial institutions.
Required:
Please prepare a presentation as required under Invitation above clearly distinguishing between Tax concessions granted to a Venture Capital as compared with the Bank.
Mr. Nor Amid, the Human Capital Resource Person of Amanda Inc, an entity registered in France sends a brief note to you in respect of a duty tour of an employee as follows:
“Amanda is sending an employee to Ghana and I am hoping that you could provide guidance for Amanda. Our understanding is as that:
The employee is French and may be kept on the French payroll
The employee’s remuneration will be cross charged to Amanda in France and Ghana
The employee, according to French Tax Law, will be French for tax purposes
The employee will spend 40% or less of his time in France
The employee will spend between 40 to 60% of his time in Ghana and whilst in Ghana the employee will be accommodated in hotels, will have free use of car with fuel and free meal.
The employee will spend his time in Ghana from 7 to 25 days at a time depending on need.
Would you kindly provide us with a brief outline of the Ghanaian tax and social security implications for Amanda and the employee? Kindly note that Ghana has an operating ‘Double Tax Treaty’ with France.
Required:
(a). Please submit a memo to respond to the concerns raised by Mr. Nor Amid.
(b). Ghana has general tax-avoidance rules in the tax acts. Kindly discuss any three practice methods adopted by the Revenue Agencies to regulate transfer pricing between related parties?
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22 Marks
STP – Feb 2020 – L2 – Q4 – Business Entity Tax Implications
Advise on tax implications of establishing a company, partnership, or sole proprietorship and identify which offers the least tax exposure for an investor.
As a renowned tax consultant, a potential investor in the real estate sector in Ghana is seeking your expert opinion on the tax implications of establishing a company, a partnership or a sole proprietorship and which form of the business organisations gives the least tax exposure for an investor.
Red flow Ghana Limited is a manufacturing entity in Ghana. Mr. Kurt Wildem, a citizen and resident of Germany owns 90% of the company’s shares. Mrs. Florence Wildem, a citizen and resident of Germany and wife of Mr. Wildem also owns 5% of the shares of the company. Mr. Jogen Wildem, the son of Mr. Kurt Wildem holds the remaining 5% of the shares in the company. As of 1st June 2019, the company had a stated capital of GH¢400,000.00. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000.00 to enable the company to increase its production capacity. Mr. Kurt Wildem who is the majority shareholder has offered to finance the purchase of a plant for the company, but his challenge is whether to provide the asset to the company as a loan or as equity.
Required: Advise Mr. Kurt Wildem on i. the income tax treatment of providing the asset to the company as equity contribution. (7 marks) ii. the income tax treatment of providing the asset to the company as a loan. (7 marks) iii. the preferable option for providing the asset to the company in order to derive the maximum tax benefits.
(a). The Chief Executive Officer (CEO) of Expedia intends expanding his business operations in Ghana. The CEO is particularly interested in the income tax consequences of financing the activities of businesses in Ghana. As a tax consultant of high repute, the CEO seeks your opinion on the income tax implications of equity financing and debt financing.
Required:
Write an opinion on the tax implications of financing the activities of a company with either debt or equity and state the preferable option of financing.
(b). Some entrepreneurs hold the view that it is better to finance the activities of a business with related-party loans than with loans provided by unrelated parties. This view is based on the idea that all interest paid on loans are deductible for tax purposes in the books of the borrower and the entrepreneur can manipulate the interest rate which will ultimately affect the corporate taxes the business will pay.
Required: Based on your knowledge of the tax treatment of loans provided by related parties, discuss the truthfulness or otherwise of the above assertion.
Welmount Ghana Ltd is a construction company with its registered office located at Cantoments in Accra. In February 2007 it purchased a parcel of land at Achimota at the cost of GH₵75,000. The company spent GH₵25,000 to construct a fence wall around the property and to complete title registration processes at the Lands Commission. In March 2008, the company also purchased shares in Barclays bank of Ghana for GH₵20,000. In April 2017, the board of directors of the company decided to purchase another parcel of land at Tse Addo near the Trade Fair at La. The board further resolved to sell off the parcel of land purchased in February 2007 and the shares the company held in Barclays bank to finance the purchase of the parcel of land at Tse Addo. The company engaged the services of a valuer to determine the market value of the land located at Achimota and the shares the company held in Barclays bank. The company paid the valuer GH₵30,000 for his services. A marketing firm was contracted to advertise the sale of the parcel of land and the shares and the firm submitted a bill of GH₵35,000 to the company. In June 2017, the company sold the parcel of land and the shares in a single transaction for GH₵500,000. At the time of the sale, the market value of the parcel of land was GH₵400,000 and that of the shares was GH₵100,000. The company paid GH₵40,000 to a law firm to conduct due diligence on the parcel of land the company intended to purchase. In February 2018, the Managing Director of the company signed the purchase agreement and an amount of GH₵600,000 was paid to the owners of the property.
Required:
I. Advise on the company on the income tax implications of the realization of the assets. (20 marks) II. Advise on measures the company could have adopted to mitigate its tax exposure (if any) on the realization of the assets.
Due to the aggressive stance of the GRA in recent times, the urgency and pace of submission of tax returns to the GRA has more than doubled. The Chief Finance Officer of SKABY BANK Ltd. requires to discuss Skaby’s Tax returns for year 2014 and 2015 by close of day today to enable him engage the Finance committee of the Board with the various tax liabilities arising from the two years’ banking activities and also access the Bank’s tax compliance level.
As Tax Consultant to SKABY BANK Ltd., extracts of the 2014 and 2015 financial statement which read as follows, has been deposited on your table for your necessary action.
SKABY COMMERCIAL BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
Note
2015 GHC’000
2014 GHC’000
505,055.00
377,000.00
2
(82,200.00)
(51,300.00)
422,855.00
325,700.00
398,444.00
75,555.00
(10,424.00)
(8,200.00)
88,020.00
67,355.00
24,800.00
15,980.00
45,620.00
8,300.00
30,420.00
24,280.00
541,295.00
417,335.00
9,000.00
7,992.00
550,295.00
409,343.00
225,000.00
215,560.00
325,295.00
193,783.00
82,000.00
32,000.00
243,295.00
161,783.00
2015 GHC’000
2014 GHC’000
242,000.00
180,600.00
256,920.00
190,600.00
6,135.00
5,800.00
505,055.00
377,000.00
b) Necessary default certificates of GHC20,000.00 have been received on income included in investment return for year 2015.
Note 2: a) Interest Expense paid
2015 GHC’000
2014 GHC’000
Borrowings
9,900.00
8,900.00
Current and Savings A/c
45,650.00
20,500.00
Time and Other deposits
26,650.00
21,900.00
82,200.00
51,300.00
b) $20%$ of interest expense payments’ mandatory withholding tax deduction has not been made.
Note 3: Fees and Commission Income
2015 GHC’000
2014 GHC’000
Commission on letters of credit
3,200.00
2,650.00
Commission on Turnover
39,050.00
34,000.00
Processing fees
5,000.00
4,500.00
Commission of foreign services
2,200.00
3,060.00
Other fees and Commissions
48,994.00
31,345.00
98,444.00
75,555.00
Note 4: Other Income
2015 GHC’000
2014 GHC’000
Dividend Income
2,000.00
Bad Debt recovery
3,000.00
Profit on sale of property
2,200.00
Rental Income
2,470.00
2,200.00
Other Income
3,100.00
8,300.00
8,300.00
Note 5 a). Operating Expenses Include
2015 GHC’000
2014 GHC’000
Advertising
2,000.00
2,000.00
Rental of premises
45,000.00
40,450.00
Directors fees
2,100.00
3,000.00
Depreciation
16,000.00
15,000.00
Amortization
6,000.00
2,500.00
Donation to MD on death of mother
62,500.00
Purchase of computers
50,000.00
2,000.00
Goodwill paid
20,000.00
25,000.00
b). Tax on rental of premises has not been accrued or paid to the GRA.
Note 6: Income Tax
2015 GHC’000
2014 GHC’000
Balance b/f
200.00
Paid for year
65,000.00
20,000.00
Deferred Tax
17,000.00
10,000.00
Total
82,000.00
30,200.00
Note 7: Extracts from the Property, Plant and Equipment schedule is as below
2015
Land & Building GHC’000
Equipment Further GHC’000
Computers GHC’000
Motor Vehicles GHC’000
Total GHC’000
Cost as at 1 January 2015
50,000.00
53,000.00
32,000.00
57,000.00
192,000.00
Additions for year
2,500.00
12,200.00
7,500.00
2,550.00
24,750.00
Disposals
–
(250.00)
(350.00)
(2,300.00)
(2,900.00)
Write-off
–
(200.00)
(45.00)
–
(245.00)
At 31 December 2015
52,500.00
64,750.00
39,105.00
57,250.00
213,605.00
Note 8 Extracts from the Intangible Assets (GOODWILL) Register is as below
2015 GHC’000
2014 GHC’000
Cost as at 1 January 2015
7,500.00
Acquisition
10,500.00
7,500.00
Bal at year end 2015
18,000.00
7,500.00
Management policy for writing off goodwill is 10 years.
Required
Kindly present to the Chief Finance Office tax information on;
a) Corporate tax computation for year 2015 and 2014,
(10 marks)
b) Capital Allowance computation for year 2015 and 2014,
(8 marks)
c) Skabi’s Tax Position for year 2015 and 2014,
(2 marks)
d) Withholding taxes payable by Skabi to the GRA.
(2 marks)
a) Mr. Kwame Berko graduated from the University of Ghana in 2017. In 2019, he secured a Government of Ghana scholarship to pursue a master’s program in Agricultural Science at the University of Alabama in the United States of America. During the course of the master’s program, he developed unique ideas on how to establish a commercial farm and also engage in the processing of the farm products. On his return to Ghana, he decided to implement the ideas developed during his time at the University of Alabama. His business plan shows that he intends to: i. establish a farm to grow coconut and as well as an associated factory to process the coconut into milk for domestic consumption. ii. establish a poultry farm to produce chicken and eggs for domestic consumption.
Mr. Berko has submitted his business plan to you for tax advice.
Required: As a tax advisor of high repute, advise Mr. Kwame Berko on the following: a. the income tax benefits of farming coconut and establishing a processing factory.
b. the income tax benefits of establishing a poultry farm.
c. the most suitable place in Ghana to establish the farms and the factory in order to derive maximum tax benefits.
(a) Does your country have bonded warehouses in which goods may be stored without triggering a taxable presence?
Required
Discuss three advantages and three disadvantages that the operation of a bonded warehouse will extend to traders in the payment of taxes.
b) Professor Zoel is a visiting professor from the University of South Africa, on sabbaticals in Ghana. He was invited by the head of the Business School, Angella University here in Ghana on 1 January 2016. After a three week closed door brush up, he was persuaded by his host, Prof Mensah, to fill in a vacancy in the department and also to stay in Ghana to the end of his sabbaticals. Prof Zoel has decided to take up the teaching appointment with Angella University.
AngellaUniversity intends to pay Prof Zoel from grants received from Columbia University (USA) marked for a special research work in Ghana. Prof Mensah has assured Prof Zoel that his (Prof Zoel) pay will be paid in USD directly to his bank account in South Africa. Prof Zoel will also receive standard benefit package in cash (relocation allowance, Ghana business travel expense allowance, accommodation, etc.) which will be paid/given to him in Ghana by Angella University.
His salary will be paid by Columbia University on a bimonthly basis and there will be no chargeback of any cost to any other location.
Prof Zoel finds his new working conditions particularly rewarding since he will additionally receive his full Professor’s salary as normally paid by his mother University employer in South Africa.
Prof Zoel is a little disturbed because he was not sure about the tax implications of his combined multiple salaries as he earns allowances in Ghana, is paid by Columbia University for work done in Ghana into his bank account in South Africa and additionally earns his professorial salary in South Africa.
As a Chartered Tax Advisor, Prof Zoel has referred this apparent tax difficulty to you for your advice. Prof Zoel intends to live the full term of his sabbaticals in Ghana which could run for at least 2 years.
Required:
Kindly identify and advise Prof Zoel on the tax implications of his entire earnings for this sabbatical in Ghana.
Berchem Plc UK (Berchem) is a foreign company that provides engineering services to Gritty Electricals Company Ltd (GEC) here in Ghana. Koranten Systems (Koranten) serves as a country representative for Berchem in Ghana and assists Berchem to execute their service contracts. Koranten Systems provides labour and local material support to Berchem when needed on the contract, whereas Berchem provides the prefinancing, expertise and specialized equipment for the execution of work. As compensation, Koranten is paid commission in cash and equipment.
Berchem won its first contract with GECin January 2014. To date, no VAT was ever charged on invoices billed to GEC by Berchem. GEC also failed to withhold taxes on payments made to Berchem. Both GEC and Berchem had the general belief that these taxes were not stated as part of the signed contracts and therefore were not applicable in respect of the contracts. Berchem again saw the VAT charge as rendering pricing of the projects uncompetitive.
Consultants to GEC have recently advised GEC to start withholding taxes from payments made to Berchem as required by the Income Tax Act, since Berchem has been providing service in Ghana for “at least 2 years”.
Required:
On behalf of Berchem Plc, The Chief Executive of Koranten requests you to provide tax advisory service on the new development. Koranten requests for a documented Tax expert advice to submit to Berchem in respect of
a) Whether Berchem Plc is tax resident in Ghana,
b) The relevance, the basis and application of VAT, withholding, and corporate taxes on the business dealings between Berchem and GEC.
VAT is chargeable on imports. The basic information required to facilitate the VAT charge on imported goods and services is the value of the goods or services. At a recent meeting organized by the Ghana National Chamber of Commerce and Industry to educate members on the taxable value for determining the VAT on imported goods and services you, as a renowned tax consultant, were invited to discuss this issue.
The topic you are to speak on is “What is the taxable value for determining the VAT on imported goods and services.
Required
a) As the preferred consultant, please present to the Chamber a discussion paper on the taxable value for determining the VAT on imported goods and services.
b). Also indicate in your presentation the procedures that must be followed before payment of VAT on the import of services is made.
State and explain three (3) anti-avoidance provisions found in the Income Tax laws of Ghana and how these provisions place a limitation on the tax planning opportunities available to taxpayers.
