Question Tag: Permanent Establishment

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  • 20 Marks

STP – Aug 2016 – L2 – Q3 – Tax Residency

Determine if Berchem Plc is a tax resident 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.

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  • 20 Marks

IT – Feb 2020 – L1 – Q1 – Taxation of Non-Residents

Advise on UK tax liability for payments to a Ghanaian company under Ghana-UK DTA.

Dzoboku Lullaby Limited is a Ghanaian music and orchestral company. Syntax Promotion, a company resident in the United Kingdom, extended an invitation to Dzoboku Lullaby Limited to a musical concert held in London in December, 2019.

Professor Abu, an employee of Dzoboku Lullaby Limited, was billed to perform for Syntax at two separate concerts in London, one at Gustaff Hall and the other at Gibson Hall. The following payments were made to Dzoboku Lullaby Limited by Syntax Promotion:
a. £100,000 for the public performance at the Gustaff Hall.
b. £20,000 for using the Professor’s image to advertise. The payment was deposited into Dzoboku Lullaby Limited’s bank account.
c. £50,000 for the cancellation of Gibson Hall’s event.
d. 2% of the gate proceeds received.
e. 20% of income that accrued from businesses that advertised at the Gustaff Hall event.

Her Majesty Revenue and Customs (HMRC) in the United Kingdom wrote to the Syntax Promotion demanding tax in respect of all incomes paid to Dzoboku Lullaby Limited. Syntax objected to the HMRC request stating that Dzobuku Lullaby Limited has no Permanent Establishment in the United Kingdom and, therefore, cannot be liable for a United Kingdom tax on business income earned by Dzoboku Lullaby Limited since there is a double tax agreement between Ghana and the United Kingdom.

Think Tank Consulting, a firm of Chartered Tax Practitioners in Accra was consulted by Syntax Promotion to advise them on the HMRC demand.

You are a Chartered Tax Practitioner in the employment of Think Tank Consulting and Syntax request was referred to you to deal with by your Managing Partner.

Required
Prepare a briefing note to the Managing Partner of Think Tank Consulting in which you set out clearly, with reasons, whether United Kingdom’s tax is due on each of the payments made to Dzoboku Lullaby Company Limited as demanded by the HMRC.

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  • 20 Marks

IT – Aug 2020 – L1 – Q5 – E-Commerce and International Tax Challenges

Identify and explain three Pillar One proposals for taxing rights in the digital economy.

a) In the policy note to address the tax challenges of the digitalization of the economy, the G20/OECD Inclusive Framework identified two Pillars, (Pillar One and Pillar Two) as proposals for unified approach in addressing the tax challenges in digital economy. Under Pillar One, three proposals have been articulated to develop a consensus based solution to give taxing right to jurisdiction from which income are earned.

Required Identify these three proposals under Pillar One and briefly explain how they can influence the current taxing right of states.

b) Within the context of the existing taxing rules contained in Double Taxation Agreements to determine a taxable presence of non-resident person in contracting states, briefly explain how each of the following impacts on the current taxing rules contained in the Double Tax Agreements that Ghana entered into with other countries. i. Computer Server ii. Independent Internet Service Provider iii. Website

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Business Presence and Characterization

Analyze tax consequences of CPL Group’s technical experts’ activities in Ghana for Mavie Limited.

Mavie Limited is resident entity in Ghana. Mavie Limited was established seven months ago when the Corona Virus 2019 (Covid-19) pandemic began. It sells personal protection equipment (PPE), including medical sanitizer, face and nose masks for self-protection against the infectious disease. The company was jointly owned by Eyra Foundation and Akusa S.A. on 40% and 60% shareholdings respectively. Eyra Foundation is resident in Ghana. Akusa S.A, is a company resident in South Africa and is 100% owned by CPL Group Plc., a multinational company resident in Netherland.

In the last six months, two technical experts from CPL visited Mavie Ltd on 3 months rotation to provide technical support to the staff of Mavie Ltd.

Last month Mavie Ltd declared an interim dividend and subsequently transferred Akusa’s share of the dividend.

The management of Mavie Ltd approached your firm, Emiraldo Consulting to advise them on the implication of the above transactions. You are a Chartered Tax Practitioner in the employment of Emiraldo Consulting and the Managing Partner requests you to draft the advice for Mavie Ltd.

Required Prepare a draft report setting out the tax consequences of

a. Dealings with CPL Group Ltd in Ghana.

b. Payment of dividend to Akusa S.A. by Mavie Limited.

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  • 20 Marks

IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Non discrimination

A. Article 24 of the MTC deals with the elimination of tax discrimination in certain precise circumstances. It deals with discrimination on the basis of nationality, statelessness, the permanent establishment of an enterprise, non-residence specifically in relation to the deductibility of certain payments (e.g. interest and royalties), and non-resident direct investors ( share capital)                                                                                                                                                                                                                                                                B. Bearer Shares and Bearer Banks

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Permanent Establishment

Analyze if technical experts’ presence in Ghana constitutes a Service PE under Article 5 of Ghana-Netherlands DTA.

(A) This question must be answered within the context of permanent establishment under Article 5 (1) of DTA between Ghana and Netherland and within domestic tax law. The presence of the technical expert may likely constitute a Service PE.                                                                                                                                                                                                                                                                                        (B)This question is based on the Article 10 (Dividend) of Double Tax Agreement (DTA). It also espoused the concept of Beneficial Ownership Concept in Paragraph 2 of Art 10 of the DTA.

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

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  • 5 Marks

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

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  • 15 Marks

ATAX – Nov 2018 – L3 – Q3a – International Taxation

Tax implications for Sadiq Corporation's contracts executed by its Nigerian subsidiary, including PE under Nigeria-UK tax agreement.

(a) Sadiq Corporation was incorporated in Sweden as a limited liability company and has a subsidiary, Omologede Ventures Nigeria Limited located in Akure, Nigeria. Peniel Nigeria Plc awarded a contract to Sadiq Corporation to renovate a rice milling factory in Gboko, Benue State, and another in Abakaliki, Ebonyi State. The contract value for the Gboko factory is $11,064,150, and $7,337,616 for the Abakaliki factory. Sadiq Corporation later sub-contracted the two jobs to its subsidiary in Nigeria. The renovation is expected to be completed within six months.

The following information was submitted to the Federal Inland Revenue Service by Omologede Ventures Nigeria Limited for the year ended December 31, 2017:

Description Amount (N)
Direct materials 962,100,000
Scaffolding 183,538,320
Administrative expenses on hired professionals 33,352,800
Rentals on equipment 18,708,248
Maintenance of equipment 7,431,688
Personnel card (domestic) 28,803,029
Personnel cost (foreign) 14,738,250
Fees to engineers 11,298,689
Other operational costs 6,512,070

Additional Information:

  1. Capital allowance agreed by Omologede Ventures Nigeria Limited with the Federal Inland Revenue Service for the year was N104,418,744.
  2. 60% of the total contract sum was made available to Omologede Ventures Nigeria Limited.
  3. Depreciation is N69,902,092.
  4. 70% of the total contract sum was paid at the beginning of the job, while the balance was paid in September of the same year.
  5. The exchange rate at the time of signing the contract was N180 to $1. The rate changed in August of the same year to N195 to $1.

Withholding tax provisions were fully complied with by the two companies, and the tax remitted to the relevant tax authority as and when due.

Required:
As the local consultancy firm in Nigeria, provide advice to the management of the two companies on the tax implications of the contracts for the relevant year of assessment, clearly showing their tax liabilities (if any).
(15 Marks)

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  • 15 Marks

AT – Nov 2022 – L3 – Q6 – Double Taxation Reliefs and Credits

Evaluate whether Singapura PTC Limited, a Singaporean company, qualifies for tax exemption in Nigeria due to the Nigeria-Singapore double taxation agreement (DTA). Outline the benefits available under the DTA to Singaporean residents and identify scenarios where the company would still be liable for tax in Nigeria.

Singapura PTC Limited, a company registered in Singapore, derived various income streams from Nigeria in 2021. Following this, the Nigerian tax office issued an assessment based on the Companies Income Tax Act, prompting Singapura PTC Limited to request an objection. The company claims that, as a Singapore resident, it should not be liable for Nigerian taxes due to the double taxation agreement between Nigeria and Singapore.

Required:

  1. Do you agree with the company, that its residence in Singapore qualifies it for tax exemption in Nigeria?
    (5 Marks)
  2. What are the benefits that may be available to a resident of Singapore under the double taxation agreement between Nigeria and Singapore?
    (5 Marks)
  3. State FIVE circumstances under which a company registered in Singapore will be liable to tax in Nigeria.
    (5 Marks)

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  • 20 Marks

STP – Aug 2016 – L2 – Q3 – Tax Residency

Determine if Berchem Plc is a tax resident 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.

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  • 20 Marks

IT – Feb 2020 – L1 – Q1 – Taxation of Non-Residents

Advise on UK tax liability for payments to a Ghanaian company under Ghana-UK DTA.

Dzoboku Lullaby Limited is a Ghanaian music and orchestral company. Syntax Promotion, a company resident in the United Kingdom, extended an invitation to Dzoboku Lullaby Limited to a musical concert held in London in December, 2019.

Professor Abu, an employee of Dzoboku Lullaby Limited, was billed to perform for Syntax at two separate concerts in London, one at Gustaff Hall and the other at Gibson Hall. The following payments were made to Dzoboku Lullaby Limited by Syntax Promotion:
a. £100,000 for the public performance at the Gustaff Hall.
b. £20,000 for using the Professor’s image to advertise. The payment was deposited into Dzoboku Lullaby Limited’s bank account.
c. £50,000 for the cancellation of Gibson Hall’s event.
d. 2% of the gate proceeds received.
e. 20% of income that accrued from businesses that advertised at the Gustaff Hall event.

Her Majesty Revenue and Customs (HMRC) in the United Kingdom wrote to the Syntax Promotion demanding tax in respect of all incomes paid to Dzoboku Lullaby Limited. Syntax objected to the HMRC request stating that Dzobuku Lullaby Limited has no Permanent Establishment in the United Kingdom and, therefore, cannot be liable for a United Kingdom tax on business income earned by Dzoboku Lullaby Limited since there is a double tax agreement between Ghana and the United Kingdom.

Think Tank Consulting, a firm of Chartered Tax Practitioners in Accra was consulted by Syntax Promotion to advise them on the HMRC demand.

You are a Chartered Tax Practitioner in the employment of Think Tank Consulting and Syntax request was referred to you to deal with by your Managing Partner.

Required
Prepare a briefing note to the Managing Partner of Think Tank Consulting in which you set out clearly, with reasons, whether United Kingdom’s tax is due on each of the payments made to Dzoboku Lullaby Company Limited as demanded by the HMRC.

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  • 20 Marks

IT – Aug 2020 – L1 – Q5 – E-Commerce and International Tax Challenges

Identify and explain three Pillar One proposals for taxing rights in the digital economy.

a) In the policy note to address the tax challenges of the digitalization of the economy, the G20/OECD Inclusive Framework identified two Pillars, (Pillar One and Pillar Two) as proposals for unified approach in addressing the tax challenges in digital economy. Under Pillar One, three proposals have been articulated to develop a consensus based solution to give taxing right to jurisdiction from which income are earned.

Required Identify these three proposals under Pillar One and briefly explain how they can influence the current taxing right of states.

b) Within the context of the existing taxing rules contained in Double Taxation Agreements to determine a taxable presence of non-resident person in contracting states, briefly explain how each of the following impacts on the current taxing rules contained in the Double Tax Agreements that Ghana entered into with other countries. i. Computer Server ii. Independent Internet Service Provider iii. Website

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Business Presence and Characterization

Analyze tax consequences of CPL Group’s technical experts’ activities in Ghana for Mavie Limited.

Mavie Limited is resident entity in Ghana. Mavie Limited was established seven months ago when the Corona Virus 2019 (Covid-19) pandemic began. It sells personal protection equipment (PPE), including medical sanitizer, face and nose masks for self-protection against the infectious disease. The company was jointly owned by Eyra Foundation and Akusa S.A. on 40% and 60% shareholdings respectively. Eyra Foundation is resident in Ghana. Akusa S.A, is a company resident in South Africa and is 100% owned by CPL Group Plc., a multinational company resident in Netherland.

In the last six months, two technical experts from CPL visited Mavie Ltd on 3 months rotation to provide technical support to the staff of Mavie Ltd.

Last month Mavie Ltd declared an interim dividend and subsequently transferred Akusa’s share of the dividend.

The management of Mavie Ltd approached your firm, Emiraldo Consulting to advise them on the implication of the above transactions. You are a Chartered Tax Practitioner in the employment of Emiraldo Consulting and the Managing Partner requests you to draft the advice for Mavie Ltd.

Required Prepare a draft report setting out the tax consequences of

a. Dealings with CPL Group Ltd in Ghana.

b. Payment of dividend to Akusa S.A. by Mavie Limited.

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  • 20 Marks

IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Non discrimination

A. Article 24 of the MTC deals with the elimination of tax discrimination in certain precise circumstances. It deals with discrimination on the basis of nationality, statelessness, the permanent establishment of an enterprise, non-residence specifically in relation to the deductibility of certain payments (e.g. interest and royalties), and non-resident direct investors ( share capital)                                                                                                                                                                                                                                                                B. Bearer Shares and Bearer Banks

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  • 20 Marks

IT – Aug 2020 – L1 – Q3 – Permanent Establishment

Analyze if technical experts’ presence in Ghana constitutes a Service PE under Article 5 of Ghana-Netherlands DTA.

(A) This question must be answered within the context of permanent establishment under Article 5 (1) of DTA between Ghana and Netherland and within domestic tax law. The presence of the technical expert may likely constitute a Service PE.                                                                                                                                                                                                                                                                                        (B)This question is based on the Article 10 (Dividend) of Double Tax Agreement (DTA). It also espoused the concept of Beneficial Ownership Concept in Paragraph 2 of Art 10 of the DTA.

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

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  • 5 Marks

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

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  • 15 Marks

ATAX – Nov 2018 – L3 – Q3a – International Taxation

Tax implications for Sadiq Corporation's contracts executed by its Nigerian subsidiary, including PE under Nigeria-UK tax agreement.

(a) Sadiq Corporation was incorporated in Sweden as a limited liability company and has a subsidiary, Omologede Ventures Nigeria Limited located in Akure, Nigeria. Peniel Nigeria Plc awarded a contract to Sadiq Corporation to renovate a rice milling factory in Gboko, Benue State, and another in Abakaliki, Ebonyi State. The contract value for the Gboko factory is $11,064,150, and $7,337,616 for the Abakaliki factory. Sadiq Corporation later sub-contracted the two jobs to its subsidiary in Nigeria. The renovation is expected to be completed within six months.

The following information was submitted to the Federal Inland Revenue Service by Omologede Ventures Nigeria Limited for the year ended December 31, 2017:

Description Amount (N)
Direct materials 962,100,000
Scaffolding 183,538,320
Administrative expenses on hired professionals 33,352,800
Rentals on equipment 18,708,248
Maintenance of equipment 7,431,688
Personnel card (domestic) 28,803,029
Personnel cost (foreign) 14,738,250
Fees to engineers 11,298,689
Other operational costs 6,512,070

Additional Information:

  1. Capital allowance agreed by Omologede Ventures Nigeria Limited with the Federal Inland Revenue Service for the year was N104,418,744.
  2. 60% of the total contract sum was made available to Omologede Ventures Nigeria Limited.
  3. Depreciation is N69,902,092.
  4. 70% of the total contract sum was paid at the beginning of the job, while the balance was paid in September of the same year.
  5. The exchange rate at the time of signing the contract was N180 to $1. The rate changed in August of the same year to N195 to $1.

Withholding tax provisions were fully complied with by the two companies, and the tax remitted to the relevant tax authority as and when due.

Required:
As the local consultancy firm in Nigeria, provide advice to the management of the two companies on the tax implications of the contracts for the relevant year of assessment, clearly showing their tax liabilities (if any).
(15 Marks)

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  • 15 Marks

AT – Nov 2022 – L3 – Q6 – Double Taxation Reliefs and Credits

Evaluate whether Singapura PTC Limited, a Singaporean company, qualifies for tax exemption in Nigeria due to the Nigeria-Singapore double taxation agreement (DTA). Outline the benefits available under the DTA to Singaporean residents and identify scenarios where the company would still be liable for tax in Nigeria.

Singapura PTC Limited, a company registered in Singapore, derived various income streams from Nigeria in 2021. Following this, the Nigerian tax office issued an assessment based on the Companies Income Tax Act, prompting Singapura PTC Limited to request an objection. The company claims that, as a Singapore resident, it should not be liable for Nigerian taxes due to the double taxation agreement between Nigeria and Singapore.

Required:

  1. Do you agree with the company, that its residence in Singapore qualifies it for tax exemption in Nigeria?
    (5 Marks)
  2. What are the benefits that may be available to a resident of Singapore under the double taxation agreement between Nigeria and Singapore?
    (5 Marks)
  3. State FIVE circumstances under which a company registered in Singapore will be liable to tax in Nigeria.
    (5 Marks)

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