Series: FEB 2020

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  • 15 Marks

STP – Feb 2020 – L2 – Q5 – Anti-Avoidance Provisions

Identify and discuss three anti-avoidance provisions in the Income Tax Act, 2015 (Act 896) and their limitations on tax planning.

Although tax planners have the liberty to devise schemes which reduce the tax liability of their clients, the Income Tax Act, 2015 (Act 896) contains provisions which limit tax planning schemes.

Required:
Identify any three (3) anti-avoidance provisions in Act 896 and discuss how each of these provisions places a limitation on the ability of a person to engage in tax planning.

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  • 22 Marks

STP – Feb 2020 – L2 – Q4 – Business Entity Tax Implications

Advise on tax implications of establishing a company, partnership, or sole proprietorship and identify which offers the least tax exposure for an investor.

As a renowned tax consultant, a potential investor in the real estate sector in Ghana is seeking your expert opinion on the tax implications of establishing a company, a partnership or a sole proprietorship and which form of the business organisations gives the least tax exposure for an investor.

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  • 25 Marks

STP – Feb 2020 – L2 – Q3 – Taxation of Capital Transactions

Advise Ravid Ghana Ltd on tax implications of selling land and office building for GHS200,000.

Ravid Ghana Ltd is a software development company with its registered office located at North Kaneshie in the Greater-Accra Region of Ghana. In March 2016 the company purchased a parcel of land at Oyarifa at a cost of GH¢25,000.00. The company spent GH¢5,000 to construct a fence wall around the property and to complete title registration processes at the Lands Commission. In May 2017, the company also purchased an office building at Madina valued at GH¢100,000.00 as well as a Toyota Hilux pick-up valued at GH¢100,000.00. In February 2018, the board of directors of the company decided to dispose of the parcel of land purchased in March 2016 and the office building in order to raise money to finance the purchase of strategic assets. The company engaged the services of a valuer to determine the market value of the land located at Oyarifa. The company paid the valuer GH¢5,000.00 for services rendered. In August 2019, the company sold the parcel of land and the office building in a single transaction for GH¢200,000.00. At the time of the sale, the market value of the land was GH¢50,000.00 and the office building was GH¢150,000.00. The written down value of the building was GH¢70,000.00 at the time of the sale.

Required: Advise the company on the income tax implications of the realization of the assets.

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  • 18 Marks

STP – Feb 2020 – L2 – Q2 – Tax Implications of Financing Options

Advise on tax implications of financing a plant purchase as equity or loan for red flow Ghana Limited.

Red flow Ghana Limited is a manufacturing entity in Ghana. Mr. Kurt Wildem, a citizen and resident of Germany owns 90% of the company’s shares. Mrs. Florence Wildem, a citizen and resident of Germany and wife of Mr. Wildem also owns 5% of the shares of the company. Mr. Jogen Wildem, the son of Mr. Kurt Wildem holds the remaining 5% of the shares in the company. As of 1st June 2019, the company had a stated capital of GH¢400,000.00. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000.00 to enable the company to increase its production capacity. Mr. Kurt Wildem who is the majority shareholder has offered to finance the purchase of a plant for the company, but his challenge is whether to provide the asset to the company as a loan or as equity.

Required: Advise Mr. Kurt Wildem on i. the income tax treatment of providing the asset to the company as equity contribution. (7 marks) ii. the income tax treatment of providing the asset to the company as a loan. (7 marks) iii. the preferable option for providing the asset to the company in order to derive the maximum tax benefits.

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  • 23 Marks

STP – Feb 2020 – L2 – Q1 – Agricultural Tax Incentives

Advise on income tax benefits of coconut farming and processing factory.

a) Mr. Kwame Berko graduated from the University of Ghana in 2017. In 2019, he secured a Government of Ghana scholarship to pursue a master’s program in Agricultural Science at the University of Alabama in the United States of America. During the course of the master’s program, he developed unique ideas on how to establish a commercial farm and also engage in the processing of the farm products. On his return to Ghana, he decided to implement the ideas developed during his time at the University of Alabama. His business plan shows that he intends to: i. establish a farm to grow coconut and as well as an associated factory to process the coconut into milk for domestic consumption. ii. establish a poultry farm to produce chicken and eggs for domestic consumption.

Mr. Berko has submitted his business plan to you for tax advice.

Required: As a tax advisor of high repute, advise Mr. Kwame Berko on the following: a. the income tax benefits of farming coconut and establishing a processing factory.

b. the income tax benefits of establishing a poultry farm.

c. the most suitable place in Ghana to establish the farms and the factory in order to derive maximum tax benefits.

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  • 20 Marks

OGMT – Feb 2020 – L1 – Q5 – Tax Liability Computation

Compute Gold Resources Ltd.'s tax liabilities for 2018, including mineral royalty, income tax, and withholding tax.

Gold Resources Ltd. is a mining company operating in the Sparrows Mine and Dove Mines in Ghana. Sparrows Mine shares a processing plant with Dove Mines, and both mines commenced commercial production in 2018. At the close of business on December 31, 2018, Gold Resources Ltd. acquired 20% exploration and production rights in the Eagle Mine which is a production mine for GH₵25,000,000.

The highlights of 2018 revenue and expenditure disclosed in tax returns filed by Gold Resources Ltd. include the following:

Revenue GH₵
Gross income from its operations in 2018 300,000,000
Hedging Income 3,000,000
Interest Income 1,000,000
Consideration realised from the sale of assets 800,000
Gross Dividend from a resident company in which it has 30% voting rights 200,000
Total Revenue 305,000,000

Expenses include the following:

Expenses GH₵
Reconnaissance & Prospecting Cost (Sparrows Mine) 45,000,000
Reconnaissance & Prospecting Cost (Dove Mines) 35,000,000
Depreciation 12,000,000
Exploration & Production Rights (Eagle Mine) 25,000,000
Expenses on Hedging transactions 5,000,000
Cost of the assets sold 300,000
Administrative Expenses 10,000,000
Profit before tax 120,000,000

Required: Compute the tax liability for each tax type that Gold Resources Ltd will be liable to pay in 2018.

Additional Information:

Item Rate
Income Tax Rate for companies 25%
Mineral Income Tax Rate 35%
Mineral Royalty Rate 5%
Capital Allowance Rate 20% on straight line basis
Dividend Withholding Tax Rate 8%
Interest Withholding Tax Rate 8%

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  • 20 Marks

OGMT – Feb 2020 – L1 – Q4 – Assignment of Petroleum Rights

Explain the tax treatment of assignment or disposal of petroleum rights under the Income Tax Act, 2015 (Act 896).

a) Explain the tax treatment of assignment of or disposal of petroleum rights as provided under the Income Tax Act 2016 (Act 896).

b) Deep Sea Ventures and Coastal Explorations are joint venture partners who have 45% and 40% interest respectively in the Atlantic Oil Fields in Ghana. They commenced exploration in 2010 and discovered hydrocarbons in commercial quantities in 2015. A plan of development was subsequently approved for the development of the Atlantic Oil Fields.

The fiscal terms of the agreement between the joint venture partners and the Government of Ghana include Bonus of US$ 100 million, Royalty of 10%, Initial (Carried) Interest of 10% Additional Participating Interest of 5%, Corporate Tax rate of 35% and Capital Allowance on straight line basis at a rate of 20%. Commercial production commenced in the Atlantic Oil Fields in 2019. Information available on the oil and gas production operations in the Atlantic Oil Fields are as follows:

Up to 31/12/2017 US$
Exploration Costs 250,000,000.00
Development Costs 2,000,000,000.00
Bonus 100,000,000.00

As at 31/12/2018 US$
Exploration Costs 15,000,000.00
Development Costs 1,500,000,000.00
Interest on loan for installations & infrastructure 100,000,000.00

NB. The loan was contracted by the operator on behalf of the parties that hold interest in the Atlantic Oil Fields

As at 31/12/2019 US$
Exploration Costs 5,000,000.00
Development Costs 430,000,000.00

Required: Compute the capital allowance entitlements of Deep Sea Ventures and Coastal Explorations and state the underlying assumptions for your computations.

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  • 20 Marks

OGMT – Feb 2020 – L1 – Q3 – Unitization and Redetermination

Explain the concepts of unitization and redetermination in the context of petroleum operations.

a) Explain the following concepts

i. Unitization; and

ii. Redetermination.

b) ABC Limited has 40% and 30% interest in Costal Reef Petroleum Agreement and Deep Sea Petroleum Agreement respectively. The contract areas of the two Petroleum Agreements have been unitised for joint operation. It has been determined that the hydrocarbon present in the unitised area is in the proportion of 40% and 60% for the Costal Reef Contract Area and Deep Sea Contract Area respectively.

Gross production of crude oil in the unitised area in 2018 year is 500,000,000 barrels. The average price of crude oil that year is $50 per barrel.

Required:

Compute the gross income of ABC Limited for the 2018 year of assessment.

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  • 20 Marks

OGMT – Feb 2020 – L1 – Q2 – Finance Lease

Explain the concept of a finance lease and its tax treatment under the Income Tax Act, 2015 (Act 896).

Explain the following concepts and their tax treatment:

a) Finance Lease;

b) Operating Lease;

c) Ring Fencing and state how it is provided for in respect of Petroleum Operations under the Income Tax Act, 2015 (Act 896).

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  • 20 Marks

OGMT – Feb 2020 – L1 – Q1 – Host Government Contracts

Identify and explain the three main Host Government Contracts for oil and gas exploration and production rights.

a) Countries grant exploration and production rights to oil and gas companies under various contractual arrangements. But there are three main ones referred to as Host Government Contracts or World Fiscal Systems for oil and gas. Identify and explain the main features of the three Host Government Contracts.

b) Ghana’s upstream petroleum fiscal regime has been described in some fora as “a hybrid of the Royalty Tax Regime and Production Sharing Contract.” Do you agree with this description? If yes, explain; and if not, explain the fiscal regime of Ghana.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q3 – Sector-Specific Taxation

Compute tax liability for Xornami Insurance Company for 2018 based on trial balance and additional info.

Xornami Insurance Company Limited has been operating a general insurance business in Ghana since 1st January, 2016.

Below is an extract from the Trial Balance as at 31/12/18:

Description GH¢000
Land (Leasehold) 10,000
Building (at cost) 130,000
Motor Vehicles (at cost) 22,000
Furniture & Fittings (at cost) 4,500
Interest received on loans 19,500
Interest on Investment 4,450
Stated Capital 100,000
Gross Premium received 127,600
Claims paid during the year 11,960
Income Tax paid 2,250
Commission paid to Agents 6,172
General Administrative Expenses 40,650
Reinsurance Premium paid 13,250
Reinsurance recoveries 18,540
Premiums returned to clients 19,308

The following additional information are made available to you:
(i) The lease is over a period of 40 years.
(ii) The General Administration Expenses include GH¢15,400 and GH¢2,500 in respect of depreciation and the Lease respectively for the year.
(iii) The company’s reserve for unexpired risk for the year ended 31st December, 2017 was GH¢42,000.
(iv) Assume that the depreciation charged in the financial statements for the year is equal to the depreciation allowances applicable to the company.
(v) Corporate Tax Rate: 25%.

Required:
Compute the tax liability of the company for 2018 year of assessment.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q2 – Employment Income Taxation

Compute tax liabilities for Mr. Tein Escoba for 2018 and 2019 based on income earned in US and Ghana.

Amanfro Plantations Company Limited was incorporated under the company’s Act 1963, Act 179 as a limited liability company on 1st October 2010. The objects of the company is to establish Rubber Plantations at Asempanaye in Western North Region. The company started operations on 1st January 2011. The company has not found its feet since it began operations due to managerial challenges. The board therefore approved the appointment of Mr Tein Escoba, an Agronomist and Rubber Production expert from Brazil as the company’s managing director.

The terms of Mr Tein Escoba’s engagement is that Firestone PLC USA shall be responsible for his salary of US$10,000.00 per month to be paid into his designated bank account in the USA. The Amanfro Plantations Company Limited would, in addition, pay him GH¢8,000.00 per month, with an annual increment of 20% on 1st January each year to meet his cost of stay in Ghana. He was paid a return air ticket costing GH¢9,600 at the end of his eighteen month duty tour to visit his family. He would be responsible for the payment of his taxes on his income due to the US Internal Revenue.

The company employed other management personnel in addition to Mr Tein Escoba. All the management staff of the company were provided with soft furnished accommodation at the project site in order to ensure an effective management of the company. In addition, all the management personnel were allocated chauffeur driven official vehicles with no limit for fuel usage. All other staff of the company were located outside the plantation concession at Asempanaye.

Mr Tein Escoba prior to his taking up the appointment in Ghana was paid US$10,000.00 to enable him relocate the wife and his two children in Mackiney, Texas USA. The cost of his transportation from Rio de Jenairo to the project site in Ghana was borne by him at a total cost of US$7,500.00. Mr Tein Escoba started work on 1st January, 2018 with the company. He paid a total tax liability of US$26,400.00 for each year on his income earned for the years 2018 and 2019 in the USA, for which he provided the relevant receipts to support the payment. He did not pay any other taxes in Ghana when a tax audit was carried out at the company. He realised the anomaly for his failure to pay tax on his earnings in Ghana and has approached you as a Tax Practitioner to help him file his returns, since assuming work in Ghana.

The average exchange rates of the cedi to the dollar for 2018 and 2019 respectively were GH¢4.8 and GH¢5.5.
There is no Double Taxation Agreement between Ghana and the USA.

Required:
Compute the tax liabilities of Mr Tein Escoba for the 2018 and 2019 years of assessment.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q1 – Indirect Taxes

Compute GET Fund, NHIL, and VAT payable for Nyameaye Limited for January 2019.

a) Nyameaye Limited is a company registered under the Companies Act 1963, Act 179 and has been in consultancy business over the years. The company has been registered to operate as a Value Added Tax (VAT) registered company, since it deals in both taxable and non-taxable supplies.

The company’s operations for January, 2019 were as follows:

GH¢
Total value of taxable supplies invoiced (VAT inclusive) 4,353,372
Input Tax on Taxable Supplies 460,317
Value of Exempt Supplies 360,000
Purchase of double cabin Toyota Pick Up (VAT exclusive) 240,000
Value of relief Supplies 108,400

Your review of the invoices showed that VAT and other levies on the Toyota pick-up and hotel bills of GH¢1,880.00 were included in the Input Tax on Taxable supplies.

Required:
Compute the GET Fund Levy, National Health Insurance Levy (NHIL) and VAT payable for the month of January, 2019.

b)i. State and explain the treatments of transactions and filing of returns in respect of the following legislations: Value Added Tax Act, (Act 870); GET Fund levy Act, 2000 (Act 581) and National Health Insurance Levy Act, 2003 (Act 650).

ii. Concisely, outline how taxes are computed and filed under the following Amendment Acts: VAT (Amendment) Acts, 2018 (Act 970), and National Health Insurance Levy (Amendment) Act, 2018 (Act 971); GET Fund (Amendment) Act, 2018 (Act 972).

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