- 10 Marks
AT – Nov 2020 – L3 – Q5b – Business income – Corporate income tax
Tax computation for Percy-Perry Construction Ghana Ltd and Percy-Perry Engineering Company USA Ltd, addressing related party transactions and withholding tax implications.
Question
Percy-Perry Engineering Company (USA) Ltd is incorporated in the USA and has Percy-Perry Construction (Ghana) Ltd as its subsidiary in Ghana. The foreign company was awarded a road construction contract by the Government of Ghana at a total sum of GH¢9 million on 1 January 2019. The company subcontracted the job to Percy-Perry Construction Ghana Ltd at GH¢7 million. Both companies entered into a technical service agreement under which the parent company would provide equipment and technical personnel for the execution of the contract.
The contract was successfully executed by Percy-Perry Construction Ghana Ltd during the year ended 31 December 2019, and the statement of comprehensive income of the company showed the following:
| Description | Amount (GH¢) |
|---|---|
| Contract Fees | 7,000,000 |
| Less: | |
| – Cost of Materials | (910,000) |
| – Hiring of Equipment | (795,000) |
| – Technical Personnel Cost | (555,000) |
| – Other Administration Expenses | (223,000) |
| – Depreciation | (110,000) |
| Net Profit | 4,407,000 |
The following additional information is provided:
- The equipment hired from the parent company at GH¢795,000 could have been hired from another company at GH¢600,000.
- If the parent company did not provide the technical personnel, Percy-Perry Construction Ghana Ltd could have employed the same personnel at GH¢450,000.
- Capital allowances for the year have been agreed at GH¢65,000.
- The contract fees were subject to withholding tax.
Required: i) Compute the Companies Income Tax payable by Percy-Perry Construction Ghana Ltd for the relevant year of assessment and comment on the treatment of any two of the transactions.
(5 marks)
ii) Compute the Companies Income Tax payable by Percy-Perry Engineering Company (USA) Ltd to the Ghana Revenue Authority for the relevant year of assessment.
(2 marks)
iii) Explain THREE (3) objectives of the Ghana Investment Promotion Centre (GIPC).
(3 marks)
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