- 20 Marks
Question
a. Section 6 (6A) of Personal Income Tax Act Cap P8 LFN 2004 as amended by Finance Act 2020, states that the Minister by Order can determine what constitutes the significant economic presence of a non-resident, executor or trustee.
Required:
In relation to what constitutes a significant economic presence, discuss:
i. Digital transactions
(4 Marks)
ii. Services
(4 Marks)
b. Alhaji Yanko Abdulahi was a successful businessman in Kano before he died. He is survived by two children, namely: Yahaya and Binta.
A trust was created for the benefit of his two children. The records of the trustee for the year ended December 31, 2021, revealed the following information:
| N | |
|---|---|
| Rental income (gross) | 2,400,000 |
| Profit from trading activities | 32,160,800 |
| Interest received (gross) | 840,000 |
| Other income | 630,500 |
Additional information provided
(i) Yahaya is entitled to a fixed annuity of N148,000 per annum.
(ii) Allowance for expenses of the trustee amounted to N62,000.
(iii) Capital allowance agreed with the Revenue amounted to N1,260,000.
(iv) Trustee remuneration per trust deed:
Fixed – N25,000 per annum
Variable – 2% of computed income.
(v) The trust has made provision for the payment of N150,000 as discretionary payments to each of the children.
(vi) 60% of the distributable income is to be shared between Yahaya and Binta in the ratio 55:45, respectively.
Required:
Compute the income of the trust assessable to tax in the hands of the trustee. (12 Marks)
Answer
a. (i) Digital transactions
Section 6 (6A) of PITA as amended by Finance Act, 2020, states that the Minister by Order can determine what constitutes the significant economic presence of a non-resident individual, executor or trustee.
For the purpose of section 13(2)(c) of CITA, a company, other than a Nigerian company, shall have a significant economic presence in Nigeria in any accounting year, where it derives gross turnover, or income of more than N25 million or its equivalent in other currencies, in that year, from any or combination of the following:
- Streaming or downloading services of digital contents, including but not limited to movies, videos, music, applications, games and e-books to any person in Nigeria;
- Transmission of data collected about Nigerian users which has been generated from such users‟ activities on a digital interface, including website or mobile applications;
- Provision of intermediation services through a digital platform, website or other online applications that link suppliers and customers in Nigeria;
- Provision of goods or services directly or through a digital platform;
- Uses Nigeria domain name (ng) or registers a website address in Nigeria; or
- Has a purposeful and sustained interaction with persons in Nigeria by customising its digital page or platform to target persons in Nigeria, including reflecting the prices of its products or services in Nigerian currency or providing options for billing or payment in Nigerian currency.
(ii) Services
A non-resident company will have a significant economic presence in Nigeria in any accounting year where it derives gross turnover or income of more than N25 million or its equivalent in other currencies from provision of technical (including training), management, consulting or professional services to persons resident in Nigeria.
b. Alhaji Yanko Abdulahi‟s Trust Computation of assessable income For 2022 assessment year
| N | N | |
|---|---|---|
| Rental income | 2,400,000 | |
| Profit from trading | 32,160,800 | |
| Interest received | 840,000 | |
| Other income | 630,500 | |
| Gross income | 36,031,300 | |
| Less: | ||
| Trustee‟s remuneration: | ||
| Fixed | 25,000 | |
| Variable (2% x N36,031,300) | 720,626 | 745,626 |
| Trustee‟s expenses | 62,000 | |
| 807,626 | ||
| Computed income | 35,223,674 | |
| Fixed annuity | 148,000 | |
| Discretionary payments (N150,000 x 2) | 300,000 | |
| Distributable income (60% x N34,775,674) | 20,865,404 | |
| 21,313,404 | ||
| Assessable income | 13,910,270 | |
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