- 10 Marks
Question
Sunproof International Inc. has been in the tyre manufacturing business in Nigeria and Sierra Leone for over ten years.
The Company’s operating results for the year ended 31 December 2012 were as follows:
| Particulars | N |
|---|---|
| Income from Nigeria | 75,000,000 |
| Income from Sierra Leone | 33,000,000 |
| Overheads | 60,000,000 |
| Depreciation – Nigeria | 6,750,000 |
| Depreciation – Sierra Leone | 1,125,000 |
| Donations to Island Club | 375,000 |
| Foreign tax suffered | 6,300,000 |
Other information:
- Net profit attributable to the Company in Sierra Leone was N7,725,000.
- Capital allowances agreed with Tax Officials for operations in Nigeria and Sierra Leone were N5,310,000 and N2,175,000 respectively.
- Assume the Company is a wholly Nigerian company.
Required:
i. Identify the Double Taxation Relief available to the Company. (4 Marks)
ii. Compute the tax liability of the Company for the relevant Year of Assessment.
Answer
i. Double Taxation Relief Available (4 Marks):
The Double Taxation Relief available to the company includes:
- Bilateral Relief: Relief granted under a double taxation treaty between Nigeria and Sierra Leone, if one exists.
- Unilateral Relief: Relief granted by Nigeria where no tax treaty exists, allowing for foreign taxes paid to be deducted against Nigerian tax liability.
- Commonwealth Relief: Relief granted where both countries are members of the Commonwealth.
- Credit Relief: The foreign tax suffered (N6,300,000) can be used as a tax credit against the Nigerian tax liability.
ii. Tax Liability Computation (11 Marks):
- Determine Adjusted Profit:
| Particulars | Nigeria (N) | Sierra Leone (N) |
|---|---|---|
| Income | 75,000,000 | 33,000,000 |
| Less: Overheads | (60,000,000) | |
| Add back: Non-allowable expenses: | ||
| Depreciation (Nigeria) | 6,750,000 | |
| Donations to Island Club (Nigeria) | 375,000 | |
| Depreciation (Sierra Leone) | 1,125,000 | |
| Adjusted Profit | 22,125,000 | 34,125,000 |
- Apply Capital Allowances:
| Particulars | Nigeria (N) | Sierra Leone (N) |
|---|---|---|
| Adjusted Profit | 22,125,000 | 34,125,000 |
| Less: Capital Allowances | (5,310,000) | (2,175,000) |
| Taxable Profit | 16,815,000 | 31,950,000 |
- Compute Tax Payable in Nigeria (30%):
| Particulars | N |
|---|---|
| Taxable Profit (Nigeria) | 16,815,000 |
| Tax @ 30% | 5,044,500 |
- Compute Tax Payable on Foreign Income (Sierra Leone):
| Particulars | N |
|---|---|
| Taxable Profit (Sierra Leone) | 31,950,000 |
| Tax @ 30% | 9,585,000 |
| Less: Foreign Tax Credit (relief) | (6,300,000) |
| Tax Payable (Sierra Leone) | 3,285,000 |
- Total Tax Liability:
| Particulars | N |
|---|---|
| Tax Payable in Nigeria | 5,044,500 |
| Tax Payable on Sierra Leone Income | 3,285,000 |
| Total Tax Liability | 8,329,500 |
- Topic: Double Taxation Reliefs and Credits
- Series: NOV 2014
- Uploader: Dotse