ATAX – May 2019 – L3 – Q5c – Double Taxation Reliefs and Credits

Advise on double taxation relief for SOKGlobal Limited and compute the applicable relief.

Question

SOKGlobal Limited is a wholly owned Nigerian company that deals with stationery items. It has a functional business unit in Cape Town, South Africa. The company’s operating results for the year ended December 31, 2017, are as follows:

Profit attributable to South Africa business: ₦8,740
Capital allowances agreed with tax officials for Nigeria and South Africa businesses were ₦5,500,000 and ₦2,210,000, respectively.

Required:
Advise the company on the double taxation relief applicable to the company, showing the necessary computations.

Answer

c. The double taxation relief available to SOKGlobal Limited for 2018 year of
assessment was N2,368,000 as computed in workings 1 and 2 below. Since
there is no double taxation agreement between South Africa and Nigeria, the
claim for the relief must be made within 6 years after 2018 year of
assessment.

WORKINGS
(Wk1) SOKGlobal Limited
Double taxation relief for 2018 year of assessment
a. There is no double taxation agreement
b. SOKGlobal Limited is a resident company
c. Double taxation relief = Double taxation rate x Foreign total income
d. Double taxation Rate = Lower of:
(i) Commonwealth rate, and
(ii) Half Nigerian Rate