Series: AUG 2018

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  • 20 Marks

STP – Aug 2018 – L2 – Q5 – Taxation of Specialized Business Sectors

Discuss tax consequences of establishing a cattle farm in Ghana and the impact of location on incentives.

(a). The Chief Executive Officer (CEO) of Dana, a meat processing company based in the United Arab Emirates is exploring the possibility of expanding the operations of the company to Ghana. The CEO intends to establish a cattle farm and an ultra-modern meat processing which would process the meat for export to the Middle East. His initial inquiries revealed that Ghana has tax incentives for investors who seek to establish businesses which produce items for export.

Required: As the preferred tax advisor, provide an opinion on the income tax consequences of establishing a cattle farm indicating whether the location of the farm impacts on the tax incentives available to an investor.

(b). Based on your knowledge of the Free Zone Act, 1995 (Act 504) state and discuss five (5) tax incentives which the investor can obtain if he registers the meat processing factory as a Free Zone Enterprise.

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  • 20 Marks

STP – Aug 2018 – L2 – Q4 – Tax Strategies for New Business Formation

Discuss tax implications of establishing a subsidiary, partnership, or branch for Urok Group in Ghana.

(a). The majority shareholder and President of Urok Group of Companies intends to expand his business activities into West Africa. His initial enquiries show that Ghana is a suitable country for his investment. The investor has been informed that there are different tax treatments for the various forms of business organisations in Ghana. As a renowned tax consultant, the investor seeks your expert opinion on the tax implications of establishing following forms of business organisations:

I. A wholly subsidiary company (5 marks)

II. A Partnership (5 marks)

III. A Branch (5 marks)

(b). Which of the above forms of business organisations gives the least tax exposure on the investment Urok Group of Companies intends to make in Ghana.

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  • 20 Marks

STP – Aug 2018 – L2 – Q3 – Tax Strategies for New Business Formation

State and explain four non-tax factors influencing an entrepreneur's decision on business location.

(a). State and explain four (4) non-tax factors which influence the decision of an entrepreneur as to where to establish a business.

(b). A Ghanaian entrepreneur is looking for an ideal location to establish an orange juice processing facility. The initial feasibility studies conducted by consultants for the entrepreneur indicate that Tema, Takoradi and Nsawam have comparable economic conditions which will make an investment in any of these cities financially prudent. With reference to the provisions of the Income Tax Act, 2015 (Act 896) discuss the tax implications of establishing a manufacturing entity in Tema, Takoradi and Nsawam and advise the entrepreneur on the most tax efficient location to establish the entity.

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  • 20 Marks

STP – Aug 2018 – L2 – Q2 – Tax Strategies for New Business Formation

Discuss tax implications of financing a company with debt or equity and recommend the preferable option.

(a). The Chief Executive Officer (CEO) of Expedia intends expanding his business operations in Ghana. The CEO is particularly interested in the income tax consequences of financing the activities of businesses in Ghana. As a tax consultant of high repute, the CEO seeks your opinion on the income tax implications of equity financing and debt financing.

Required:

Write an opinion on the tax implications of financing the activities of a company with either debt or equity and state the preferable option of financing.

(b). Some entrepreneurs hold the view that it is better to finance the activities of a business with related-party loans than with loans provided by unrelated parties. This view is based on the idea that all interest paid on loans are deductible for tax purposes in the books of the borrower and the entrepreneur can manipulate the interest rate which will ultimately affect the corporate taxes the business will pay.

Required: Based on your knowledge of the tax treatment of loans provided by related parties, discuss the truthfulness or otherwise of the above assertion.

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  • 20 Marks

STP – Aug 2018 – L2 – Q1 – Taxation of Capital Transactions

Advise Welmount Ghana Ltd on tax implications of selling land and shares, and measures to mitigate tax exposure.

Welmount Ghana Ltd is a construction company with its registered office located at Cantoments in Accra. In February 2007 it purchased a parcel of land at Achimota at the cost of GH₵75,000. The company spent GH₵25,000 to construct a fence wall around the property and to complete title registration processes at the Lands Commission. In March 2008, the company also purchased shares in Barclays bank of Ghana for GH₵20,000. In April 2017, the board of directors of the company decided to purchase another parcel of land at Tse Addo near the Trade Fair at La. The board further resolved to sell off the parcel of land purchased in February 2007 and the shares the company held in Barclays bank to finance the purchase of the parcel of land at Tse Addo. The company engaged the services of a valuer to determine the market value of the land located at Achimota and the shares the company held in Barclays bank. The company paid the valuer GH₵30,000 for his services. A marketing firm was contracted to advertise the sale of the parcel of land and the shares and the firm submitted a bill of GH₵35,000 to the company. In June 2017, the company sold the parcel of land and the shares in a single transaction for GH₵500,000. At the time of the sale, the market value of the parcel of land was GH₵400,000 and that of the shares was GH₵100,000. The company paid GH₵40,000 to a law firm to conduct due diligence on the parcel of land the company intended to purchase. In February 2018, the Managing Director of the company signed the purchase agreement and an amount of GH₵600,000 was paid to the owners of the property.

Required:

I. Advise on the company on the income tax implications of the realization of the assets. (20 marks) II. Advise on measures the company could have adopted to mitigate its tax exposure (if any) on the realization of the assets.

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  • 20 Marks

STP – Aug 2018 – L2 – Q5 – Taxation of Specialized Business Sectors

Discuss tax consequences of establishing a cattle farm in Ghana and the impact of location on incentives.

(a). The Chief Executive Officer (CEO) of Dana, a meat processing company based in the United Arab Emirates is exploring the possibility of expanding the operations of the company to Ghana. The CEO intends to establish a cattle farm and an ultra-modern meat processing which would process the meat for export to the Middle East. His initial inquiries revealed that Ghana has tax incentives for investors who seek to establish businesses which produce items for export.

Required: As the preferred tax advisor, provide an opinion on the income tax consequences of establishing a cattle farm indicating whether the location of the farm impacts on the tax incentives available to an investor.

(b). Based on your knowledge of the Free Zone Act, 1995 (Act 504) state and discuss five (5) tax incentives which the investor can obtain if he registers the meat processing factory as a Free Zone Enterprise.

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  • 20 Marks

STP – Aug 2018 – L2 – Q4 – Tax Strategies for New Business Formation

Discuss tax implications of establishing a subsidiary, partnership, or branch for Urok Group in Ghana.

(a). The majority shareholder and President of Urok Group of Companies intends to expand his business activities into West Africa. His initial enquiries show that Ghana is a suitable country for his investment. The investor has been informed that there are different tax treatments for the various forms of business organisations in Ghana. As a renowned tax consultant, the investor seeks your expert opinion on the tax implications of establishing following forms of business organisations:

I. A wholly subsidiary company (5 marks)

II. A Partnership (5 marks)

III. A Branch (5 marks)

(b). Which of the above forms of business organisations gives the least tax exposure on the investment Urok Group of Companies intends to make in Ghana.

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  • 20 Marks

STP – Aug 2018 – L2 – Q3 – Tax Strategies for New Business Formation

State and explain four non-tax factors influencing an entrepreneur's decision on business location.

(a). State and explain four (4) non-tax factors which influence the decision of an entrepreneur as to where to establish a business.

(b). A Ghanaian entrepreneur is looking for an ideal location to establish an orange juice processing facility. The initial feasibility studies conducted by consultants for the entrepreneur indicate that Tema, Takoradi and Nsawam have comparable economic conditions which will make an investment in any of these cities financially prudent. With reference to the provisions of the Income Tax Act, 2015 (Act 896) discuss the tax implications of establishing a manufacturing entity in Tema, Takoradi and Nsawam and advise the entrepreneur on the most tax efficient location to establish the entity.

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  • 20 Marks

STP – Aug 2018 – L2 – Q2 – Tax Strategies for New Business Formation

Discuss tax implications of financing a company with debt or equity and recommend the preferable option.

(a). The Chief Executive Officer (CEO) of Expedia intends expanding his business operations in Ghana. The CEO is particularly interested in the income tax consequences of financing the activities of businesses in Ghana. As a tax consultant of high repute, the CEO seeks your opinion on the income tax implications of equity financing and debt financing.

Required:

Write an opinion on the tax implications of financing the activities of a company with either debt or equity and state the preferable option of financing.

(b). Some entrepreneurs hold the view that it is better to finance the activities of a business with related-party loans than with loans provided by unrelated parties. This view is based on the idea that all interest paid on loans are deductible for tax purposes in the books of the borrower and the entrepreneur can manipulate the interest rate which will ultimately affect the corporate taxes the business will pay.

Required: Based on your knowledge of the tax treatment of loans provided by related parties, discuss the truthfulness or otherwise of the above assertion.

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  • 20 Marks

STP – Aug 2018 – L2 – Q1 – Taxation of Capital Transactions

Advise Welmount Ghana Ltd on tax implications of selling land and shares, and measures to mitigate tax exposure.

Welmount Ghana Ltd is a construction company with its registered office located at Cantoments in Accra. In February 2007 it purchased a parcel of land at Achimota at the cost of GH₵75,000. The company spent GH₵25,000 to construct a fence wall around the property and to complete title registration processes at the Lands Commission. In March 2008, the company also purchased shares in Barclays bank of Ghana for GH₵20,000. In April 2017, the board of directors of the company decided to purchase another parcel of land at Tse Addo near the Trade Fair at La. The board further resolved to sell off the parcel of land purchased in February 2007 and the shares the company held in Barclays bank to finance the purchase of the parcel of land at Tse Addo. The company engaged the services of a valuer to determine the market value of the land located at Achimota and the shares the company held in Barclays bank. The company paid the valuer GH₵30,000 for his services. A marketing firm was contracted to advertise the sale of the parcel of land and the shares and the firm submitted a bill of GH₵35,000 to the company. In June 2017, the company sold the parcel of land and the shares in a single transaction for GH₵500,000. At the time of the sale, the market value of the parcel of land was GH₵400,000 and that of the shares was GH₵100,000. The company paid GH₵40,000 to a law firm to conduct due diligence on the parcel of land the company intended to purchase. In February 2018, the Managing Director of the company signed the purchase agreement and an amount of GH₵600,000 was paid to the owners of the property.

Required:

I. Advise on the company on the income tax implications of the realization of the assets. (20 marks) II. Advise on measures the company could have adopted to mitigate its tax exposure (if any) on the realization of the assets.

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