Cross-border taxation

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

Question

Abakali Limited is a company engaged in the manufacturing of three variants of beverages. The products of the company are well received by consumers, as the company now controls about 55% of the domestic market. The “chocolate” brand is the top earner for the company. According to a recent newspaper review, “it has the same quality as those imported into the country from the western world.”

The Board of the company, at one of its meetings, decided to enter the West African market in 2024 and, by 2026, the European market, through:

Establishment of depots in major cities of four neighboring countries (Republic of Benin, Togo, Ghana, and Niger) with goods transported by road.
Incorporation of a branch in a European country, initially serving as a depot, but within two years, full production will commence.

As emphasized by one of the directors, the main challenge the company must address is the strategy to mitigate the negative impact of high tax rates (in Europe and West African countries) on profits to achieve better returns on investment.

A director, previously employed by an international company, suggested using “treaty shopping” as a tax planning strategy for locating the branch office in Europe. He also pointed out that the Economic Community of West African States (ECOWAS) common external tariff framework provides a solution to different tax regimes in the sub-region.

Most Board members are not familiar with “treaty shopping” or the ECOWAS common external tariff framework, and they have requested professional advice on these matters.

The Managing Director has approached your professional accounting firm for guidance on the key issues raised in the meeting.

Required:

As the officer designated to handle this task, write a report to your Principal Partner for review before sending it to the client. The report should address the following concerns of the client:

a. Explanation of the concept and practice of “treaty shopping” (6 Marks)

b. Discussion on the strategies employed by various countries in curbing treaty shopping in international transactions (2 Marks)

c. Discussion on the features of the ECOWAS common external tariff framework (4 Marks)

d. Comment on the trade defense measures put in place to guide the operations of the common external tariff framework (3 Marks)

(Total 15 Marks)

Answer

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Tags: Cross-border taxation, ECOWAS, External Tariff, Tax Planning, Treaty Shopping, West African Markets
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2018

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

Question

Naijax Group Limited has been in operation since 1980, playing a leading role in the automobile industry.

Division “X,” which is part of the group, manufactures only “265 by 16’’ Rim tyre, which it sells to external customers and also to Division “Y,” another member of the group. Naijax Group’s policy is that:

Divisions have the freedom to set transfer prices and choose their suppliers.
It uses Residual Income (RI) for performance appraisals.
The group’s cost of capital is 12% per annum.

The two divisions’ operating data are as follows:

Division X
Budgeted information for the coming year:
Maximum capacity	150,000 tyres
External sales	110,000 tyres
External selling price	N35,000 per tyre
Variable cost	N22,000 per tyre
Fixed costs	N1,080,000,000
Capital employed	N3,200,000,000
Target residual income	N180,000,000

Division Y has found two other companies willing to supply tyres:

Adex Limited could supply at N28,000 per tyre, but only for annual orders in excess of 50,000 tyres.
Banaxa Limited could supply at N33,000 per tyre for any quantity ordered.

Required:

(a) If Division Y provisionally requests a quotation for 60,000 tyres from Division X for the coming year:

i. Determine the transfer price per tyre that Division X should quote in order to meet its residual income target. (9 Marks)

ii. Calculate the TWO prices that Division X would have to quote to Division Y if it becomes the group’s policy to quote transfer prices based on opportunity costs. (2 Marks)

(b) Evaluate the impact of the group’s current and proposed policies on the profits of Divisions X and Y and on group profit. (4 Marks)

c. Assume that Divisions X and Y are based in different countries and consequently pay taxes at different rates: Division X at 55% and Division Y at 25%. If Division X has now quoted a transfer price of N30,000 per tyre for 60,000 tyres, you are required to determine whether it is better for the group if Division Y purchases
60,000 tyres from Division X or from Adex Limited. (15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cross-border taxation, Divisional Profitability, Opportunity Cost, Residual Income, Transfer Pricing
Level: Level 2

Topic: Divisional Performance Measurement, Transfer Pricing

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

Question

Trolex Ltd was incorporated in the United Kingdom. It manufactures watches for sale only in the Asian Markets. The company is a success story from its commercial enterprise in its production of “wonder watches.”

Vielo Ltd, a locally incorporated company with 4 shareholders, scanned the environment with the bid to start a business that would make it successful. The management of Vielo Ltd heard of the “wonder watches” sold by Trolex Ltd. Consequently, the management of Vielo Ltd placed an order for 10 million watches from Trolex Ltd. From the analysis, Trolex Ltd would make £600,000 from this transaction as profit. The sales value to be transferred to Trolex Ltd by Vielo Ltd amounts to £900 million.

The management of Vielo Ltd has written to the Kaneshie Office of the Ghana Revenue Authority on the tax implication of the payment.

Required:
Advise the Commissioner-General through the office manager on the tax implication of the profit and the transfer payment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cross-border taxation, Profit repatriation, Trading in Ghana, Trading with Ghana
Level: Level 3

Topic: International taxation
Series: MAR 2024

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

Question

The Board of the company, at one of its meetings, decided to enter the West African market in 2024 and, by 2026, the European market, through:

Establishment of depots in major cities of four neighboring countries (Republic of Benin, Togo, Ghana, and Niger) with goods transported by road.
Incorporation of a branch in a European country, initially serving as a depot, but within two years, full production will commence.

Most Board members are not familiar with “treaty shopping” or the ECOWAS common external tariff framework, and they have requested professional advice on these matters.

The Managing Director has approached your professional accounting firm for guidance on the key issues raised in the meeting.

Required:

As the officer designated to handle this task, write a report to your Principal Partner for review before sending it to the client. The report should address the following concerns of the client:

a. Explanation of the concept and practice of “treaty shopping” (6 Marks)

b. Discussion on the strategies employed by various countries in curbing treaty shopping in international transactions (2 Marks)

c. Discussion on the features of the ECOWAS common external tariff framework (4 Marks)

d. Comment on the trade defense measures put in place to guide the operations of the common external tariff framework (3 Marks)

(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cross-border taxation, ECOWAS, External Tariff, Tax Planning, Treaty Shopping, West African Markets
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2018

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

Question

Naijax Group Limited has been in operation since 1980, playing a leading role in the automobile industry.

Divisions have the freedom to set transfer prices and choose their suppliers.
It uses Residual Income (RI) for performance appraisals.
The group’s cost of capital is 12% per annum.

The two divisions’ operating data are as follows:

Division X
Budgeted information for the coming year:
Maximum capacity	150,000 tyres
External sales	110,000 tyres
External selling price	N35,000 per tyre
Variable cost	N22,000 per tyre
Fixed costs	N1,080,000,000
Capital employed	N3,200,000,000
Target residual income	N180,000,000

Division Y has found two other companies willing to supply tyres:

Adex Limited could supply at N28,000 per tyre, but only for annual orders in excess of 50,000 tyres.
Banaxa Limited could supply at N33,000 per tyre for any quantity ordered.

Required:

(a) If Division Y provisionally requests a quotation for 60,000 tyres from Division X for the coming year:

i. Determine the transfer price per tyre that Division X should quote in order to meet its residual income target. (9 Marks)

ii. Calculate the TWO prices that Division X would have to quote to Division Y if it becomes the group’s policy to quote transfer prices based on opportunity costs. (2 Marks)

(b) Evaluate the impact of the group’s current and proposed policies on the profits of Divisions X and Y and on group profit. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cross-border taxation, Divisional Profitability, Opportunity Cost, Residual Income, Transfer Pricing
Level: Level 2

Topic: Divisional Performance Measurement, Transfer Pricing

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

Question

The management of Vielo Ltd has written to the Kaneshie Office of the Ghana Revenue Authority on the tax implication of the payment.

Required:
Advise the Commissioner-General through the office manager on the tax implication of the profit and the transfer payment.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cross-border taxation, Profit repatriation, Trading in Ghana, Trading with Ghana
Level: Level 3

Topic: International taxation
Series: MAR 2024

Question Tag: Cross-border taxation

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AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

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AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

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PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

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AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

You're reporting an error for "AT – Mar 2024 – L3 – Q2a – International taxation"

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

You're reporting an error for "AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits"

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

You're reporting an error for "PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement"

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

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