- 20 Marks
AT – May 2024 – L3 – SB – Q3 – Double Taxation Reliefs and Credits
Calculation of double taxation relief and tax liabilities for Lagode Nigeria, including implications of double taxation treaties.
Question
Lagode Nigeria Limited, based in Lagos, Nigeria, commenced operations as a manufacturer of indigenous fabrics in 2013. Products are sold to wholesalers and retailers in Nigeria and to Africans in diaspora, particularly during annual holiday periods. A market survey in 2018 revealed a lack of local Nigerian fabric manufacturers in North America, prompting the company to establish Kuramo Incorp. in Ottawa, Canada, which began operations in January 2020.
The operating results for both locations for the year ended December 31, 2022, are as follows:
| Description | Lagos, Nigeria (N’000) | Ottawa, Canada (N’000) |
|---|---|---|
| Gross turnover | 180,200 | 330,800 |
| Less: Expenses | ||
| – Cost of materials | 72,100 | 162,320 |
| – Wages and salaries | 18,050 | 42,120 |
| – Finance costs | 1,400 | 3,150 |
| – Miscellaneous | 4,600 | 5,270 |
| – Depreciation | 5,760 | 8,750 |
| – Share of head office expenses | 25,600 | 16,040 |
| – Foreign tax paid | – | 18,900 |
| Total expenses | 127,510 | 256,550 |
| Net profit | 52,690 | 74,250 |
Additional Information:
- Ottawa branch is a wholly owned Nigerian company.
- Miscellaneous expenses are allowable for tax purposes.
- Capital allowances agreed with Nigerian tax authorities:
Location Capital Allowance (N’000) Lagos operations 6,800 Ottawa operations 9,900 - The exchange rate for Canadian operations is fair.
- No double taxation agreement exists between Nigeria and Canada.
Required:
In accordance with the provisions of the Companies Income Tax Act Cap. C21 LFN 2004 (as amended), you are to: a. Compute the double taxation relief (if any) available to the Nigerian company
(9 Marks)
b. Advise on the tax liabilities of the Nigerian company for the relevant assessment year (9 Marks)
c. Comment on the implications of double taxation agreements on withholding tax deductions by a company resident in a country:
(i) With no double taxation agreement with Nigeria
(1 Mark)
(ii) With double taxation treaty with Nigeria (1 Mark)
Total: 20 Marks
Find Related Questions by Tags, levels, etc.