Subject: ADVANCED TAXATION

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  • 10 Marks

AT – Nov 2024 – L3 – Q5b – Tax Implications of Foreign Acquisition

Evaluate the tax implications of a 70% equity acquisition by a foreign company and the proposed funding option

Baimbil LTD, based in Australia, has decided to acquire a company in Ghana instead of starting a new one.

The shareholders of Borketey LTD, a resident company in Ghana, have decided to sell the company due to cash flow challenges. As a result, Baimbil LTD approached the management of Borketey LTD and engaged a consultancy firm to perform due diligence checks. Following this, Baimbil LTD acquired 70% of the equity of Borketey LTD.

Below is an extract from the books of Borketey LTD for the 2023 year of assessment:

Description Amount (GH¢)
Share Capital 1,000,000
Retained Earnings (500,000)
Shared Deals 50,000
Bad Debts (Sold to MN LTD, now bankrupt) 1,000,000

Proposed Financing by Baimbil LTD:

The following proposals have been tabled for consideration after the acquisition:

  1. Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
  2. Baimbil LTD to provide GH¢100 million as additional equity capital.
  3. Baimbil LTD to provide collateral for a bank facility of GH¢100 million in Ghana.

Required:

(i) Evaluate the tax implications of the 70% equity acquisition.

(ii) Evaluate the tax implications of the three proposed financing options.

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  • 10 Marks

AT – Nov 2024 – L3 – Q5a – Transfer Pricing Documentation and Compliance

Explain the required transfer pricing documentation and exemptions under Ghana’s Transfer Pricing Regulations, 2020 (L.I. 2412).

You are a Senior Transfer Pricing Associate of Fameye and Associates. You have received the following email from a former client, Asew LTD, who has received a Transfer Pricing audit assessment from the Ghana Revenue Authority (GRA) for the 2021, 2022, and 2023 years of assessment.

Subject: Transfer Pricing Compliance Assistance

Hello Team,

I came to the office today and received a letter from the GRA regarding a tax assessment on transfer pricing issues. According to the letter, our company owes the GRA some penalties for non-compliance with the transfer pricing regulations. I am confused as to what our compliance obligations are. I would need your assistance on how we can comply with the transfer pricing laws of Ghana.

I hope to hear from you soon.

Kind regards,

Nii Armaah
Managing Director, Asew LTD

Required:

In line with the provisions of the Transfer Pricing Regulations, 2020 (L.I. 2412), draft a response for the review of your Tax Partner, covering the following:

(i) The required transfer pricing documentation that must be maintained by companies in Ghana under the three-tier transfer pricing documentation requirements, including the time by which these must be filed with the GRA, where applicable.                      (ii) TWO conditions or circumstances under which a company may be exempted from compliance with any of the above documentation requirements.

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  • 5 Marks

AT – Nov 2024 – L3 – Q4b – Crowding Out Effect in Fiscal Policy

Explain the concept of ‘Crowding Out’ in fiscal policy, using relevant examples.

Expansionary Fiscal Policy has been criticised on the grounds that it can lead to ‘Crowding Out’.

Required:

Explain with appropriate examples what is meant by ‘Crowding Out’ as used under Fiscal Policy.

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  • 10 Marks

AT – Nov 2024 – L3 – Q4a – Value Added Tax Deductibility

Determine the deductible input VAT for a VAT-registered company operating multiple business divisions under different VAT treatments.

The two scenarios below relate to ClearTel LTD, a VAT-registered company in Ghana. Each scenario is an independent scenario and should be considered separately.

Scenario 1

ClearTel LTD operates three divisions (XYZ). Division X deals in the sale of computers and mobile phones. Division Y deals in the sale of locally-manufactured sanitary towels. Division Z is into the supply of fertilizers to farmers in Ghana.

Revenue from each division for 2024 is shown below:

Division Description Revenue (GH¢)
X Computers and mobile phones 1,005,700
Y Sale of locally-manufactured sanitary towels 2,500,000
Z Supply of fertilizers to farmers 78,800,000

ClearTel LTD has incurred total input VAT of GH¢50,500,000, and the Finance Manager of the company is unable to determine specifically which division of the business this input VAT amount relates to.

Required:

Determine the amount of input VAT ClearTel LTD can deduct, in line with the provisions of the Value Added Tax Act, 2013 (Act 870 as amended). Justify your answer

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  • 5 Marks

AT – Nov 2024 – L3 – Q3c – Automatic Stabilizers vs Discretionary Fiscal Policies

Explain the difference between automatic stabilizers and discretionary fiscal policies with examples.

Some commentators in Ghana have argued that economic policymakers should allow automatic stabilizers to shape and direct the destiny of the economy rather than discretionary fiscal policies since the latter has failed woefully.

Required:
Distinguish between automatic stabilizers and discretionary fiscal policies as economic tools. Illustrate with examples.

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  • 3 Marks

AT – Nov 2024 – L3 – Q3b – Prohibitions on Representation and Tax Advice

Explain the prohibitions on representation and tax advice in relation to tax consultants under the Revenue Administration Act, 2016 (Act 915).

With reference to the Revenue Administration Act, 2016 (Act 915), what constitutes prohibitions on representation and tax advice in relation to tax consultants?

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  • 12 Marks

AT – Nov 2024 – L3 – Q3a – Tax Planning and Objection to Tax Assessment

Advise Poyooyo LTD on provisions in tax laws to challenge a disputed tax liability.

The Directors of Poyooyo LTD have heard of the Maxims of Tax Planning, which outline strategies for minimizing tax liabilities legally.

In a recent visit by the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA), the Large Taxpayers Office (LTO) in Accra conducted a tax audit on the company, resulting in tax assessments raised against Poyooyo LTD for settlement.

Management of the company, in their last meeting with the directors, presented the outcome of the tax audit and strongly argued that the assessment was erroneous. They claimed that the liabilities raised were based on legitimate tax planning strategies the company employed.

They believe that the company is in full compliance with the tax laws and should not be required to settle the tax liabilities assessed. However, payment of the liability would significantly impact the company’s cash flow and disrupt its operations.

Poyooyo LTD has approached your tax consulting firm for assistance and guidance.

Required:

Advise Poyooyo LTD on the provisions of the tax laws that could be taken advantage of to avert the payment of the liability.

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  • 5 Marks

AT – Nov 2024 – L3 – Q2c – Extension of Time and Early Filing of Tax Returns

Explain the conditions for tax return extension and early filing requirements.

Akosua Sokode has set up a small business to sell cosmetics in Accra. She just called you, an associate member of the Institute of Chartered Accountants Ghana, to seek your advice on tax returns and payment of taxes. Akosua Sokode told you that she cannot meet her tax payment deadlines and cannot file tax returns by the due dates. She also confided in you that maintenance of documents is a big problem for her.

Required:

Address the concerns of Akosua Sokode by briefing her on the following:

i) THREE factors regarding the extension of time for filing tax returns.

ii) TWO circumstances under which the Commissioner-General may request for filing of tax returns before the due date.

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  • 9 Marks

AT – Nov 2024 – L3 – Q2b – Tax Implications of 100% Acquisition in Mining Operations

Explain the tax implications of a 100% acquisition and compute the gains from the acquisition.

Tongo LTD (Tongo) is a mining company operating in the Upper East Region of Ghana. The following relates to the operations of Tongo for the 2023 year of assessment:

Description GH¢
Revenue (Gross) 200,000,000
Cost of Operations 80,000,000
Margin/Profit 120,000,000

Additional Information:

  1. Tempane Mines LTD acquired 100% interest in Tongo for a consideration of GH¢310,000,000 at the end of 2023.
  2. The cost of assets acquired at their respective acquisition dates are as follows:
Year Cost of Assets (GH¢)
2020 100,000,000
2021 75,000,000
2023 50,000,000

Required:

i) Explain the tax implication of the 100% acquisition.

ii) Compute the gains from the above acquisition and determine how the gains should be treated.

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  • 30 Marks

ATAX – May 2019 – L3 – Q1b – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

b. Priceless Oil Limited commenced crude oil production in Nigeria in 2006. The company has provided the following financial report for the year ended December 31, 2018:

Additional Information:

  1. Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
  2. Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
  3. Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
  4. Depreciation of ₦120,250,000 was included in production costs.
  5. Qualifying capital expenditures:
Type Date Location Amount (₦)
Storage tank March 12, 2018 On-shore 23,500,000
Plant and equipment November 15, 2018 Continental Shelf of 130
metres of water depth		 75,000,000
  1. Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
  2. Admin expenses include ₦3,500,000 stamp duties for debentures.
  3. Specific bad debts written off: ₦39,500,000.
  4. Donations were wholly expended for petroleum operations.
  5. ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
  6. ₦20,500,000 interest was paid to an associate company at market rate.

Prepare and submit a report on the following computations:
i. Assessable profit (12 Marks)
ii. Chargeable profit (6 Marks)
iii. Chargeable tax (6 Marks)
iv. Total tax payable (6 Marks)

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q7 – Capital Gains Tax (CGT)

Compute total income for 2011 tax assessment and capital gains tax for relevant year.

Mr. James Zonto lived in Canada for thirty years and decided to settle down permanently in Nigeria with effect from January 2007.

Based on advice from his secondary school classmate, Mr. James Zonto repatriated a huge amount of money to Nigeria. He took advantage of the better investment climate in Nigeria and acquired the following properties:

  1. Uyo Duplex: Bought on 2 March 2008 for N25,320,000. Rental income: N855,000 per annum (net of withholding tax).
  2. Fixed Deposit Account: Invested N14,000,000 on 4 January 2008 with Doronine Bank Plc, yielding interest (net of withholding tax) of N180,000 per month.
  3. Onitsha Property: Acquired on 6 October 2008 for N31,500,000 with incidental expenses of N2,400,000. Annual rent: N1,800,000.
  4. Okija House: Bought for N10,000,000 as a personal residence; not rented out.

In 2012, he decided to resettle in Toronto and took the following actions:

  • Uyo House: Sold for N47,450,000 after incurring the following expenses:
    • Advertising: N650,000
    • Valuation fees: N2,000,000
    • Estate Agent’s Commission: N2,372,500
    • Legal fees: N1,500,000
  • Fixed Deposit: Matured on 31 December 2011; not rolled over.
  • Onitsha Property: Sold one of the four duplexes for N14,175,000. Remaining duplexes valued at N40,500,000.
  • Okija House: Sold for N36,500,000 after incurring incidental expenses of N3,650,000.

Required:
(a) Compute the Total Income for Income Tax purposes for 2011 year of assessment.
(b) Compute the Capital Gains Tax payable for the relevant year of assessment.

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  • 5 Marks

AT – Nov 2014 – L3 – SC – Q6b – Double Taxation Relief

Provide advice on mitigating double taxation for an individual earning income across multiple countries.

Rev. (Dr.) Smart is an individual who has worked in many countries. Many of his disciples regard him as a “Great man of God” because he has won so many souls and performed real miracles.

He had worked in Ghana, South Africa, Zimbabwe, United Kingdom, Canada, Germany, Netherlands, and the United States of America.

His annual income is earned piecemeal from each country where he ministers. From his itinerary in 2013, as provided by his Personal Assistant, he had visited more than fifteen countries including Nigeria, and in some cases, stayed for more than two months in a few of the countries visited.

He is faced with how to determine his taxable income in each of the countries visited as well as tax payable in Nigeria where he permanently resides.

You have been appointed as the Tax Consultant to Rev. (Dr.) Smart.

Required:
Advise on the relevant provisions of the Tax Laws that will mitigate the possible effect of paying tax on the same income in two or more countries.

(5 Marks)

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  • 10 Marks

AT – Nov 2014 – L3 – SC – Q6a – Double Taxation Reliefs and Credits

Identify double taxation relief and compute the tax liability for a Nigerian company with foreign operations.

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:

  1. Net profit attributable to the Company in Sierra Leone was N7,725,000.
  2. Capital allowances agreed with Tax Officials for operations in Nigeria and Sierra Leone were N5,310,000 and N2,175,000 respectively.
  3. 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.

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q4 – Petroleum Profits Tax (PPT)

Analyze tax implications for Broadway Limited's pioneer status and relevant years of assessment.

Broadway Limited was incorporated on 31 May 2004, as a manufacturer of plastic products. Four Lebanese shareholders invested substantially, intending to become members of the Board of Directors. The company applied for a Pioneer Status under the Industrial Development (Income Tax Relief) Act, Cap. 17, LFN 2004 and was granted a Pioneer Certificate, with a Production Day certified as 1 August 2004.

The following information has been extracted from the company’s records:

Details Amount (N)
Net Profit for Financial Year Ended 31 July 2008 5,005,000
Depreciation 396,435

The Federal Inland Revenue Service (FIRS) certified the following expenditures up to and including the year ended 31 July 2007:

Expenditure Type Amount (N)
Industrial Building 6,142,500
Non-Industrial Building 2,990,000
Plant and Machinery 4,631,250
Motor Vehicles 4,062,500

The promoters declined to apply for an extension of the Pioneer period.

Required:
Advise the management on the tax implications for the relevant years of assessment.

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q3 – Petroleum Profits Tax (PPT)

Calculate the total tax liabilities of Jisosi Petroleum Limited to aid in dividend decision-making.

The Independent Auditors of Jisosi Petroleum Limited submitted the draft Audited Financial Statements for the year ended 31 December 2013 for management’s discussion. The executive summary revealed total revenue of N286,650,000 and Profit Before Taxation of N82,642,000.

To arrive at the proposed dividend for the consideration of the Board, there is a need to determine the total tax liabilities for the year. The draft Statement of Profit or Loss includes the following items among others:

Expense Item Amount (N)
Royalty on Crude Oil sold 13,500,000
Cost of Well Drilling 25,000,000
Custom Duties 500,000
Clearing of Oil Spillage 7,500,000
Depreciation 32,000,000
Donations 4,500,000
Community Relations Expenses 10,000,000
Transportation Expenses for 2012 8,500,000

Additionally, the revenue includes:

  1. Profit on Property, Plant, and Equipment sold: N48,000
  2. Income from transportation of crude oil for the year ended 31 December 2012: N16,894,000

The officials of Federal Inland Revenue Service (FIRS) and the Company agreed as follows:

Item Amount (N)
Annual Allowances on exploration 25,500,000
Balancing Charge on exploration 242,000
Capital Allowances on exploration b/f 11,000,000
Petroleum Investment Allowance 18,500,000
Capitalised Intangible Drilling Cost 14,000,000
Losses b/f 10,000,000
Capital Allowances on transportation 750,000

Required:
Determine the total tax liabilities of the company for the consideration of the directors to aid in the proposed dividend decision.

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q2 – Tax Incentives and Reliefs

Prepare a presentation discussing objectives of tax incentives and benefits in Export Processing Zones for German investors.

Your firm has been commissioned by the Nigerian Business Forum to present a thirty-minute paper at a seminar organised for some German Investors who wish to establish in certain sectors of the Nigerian Economy.

The Nigerian Business Forum made your task very easy by narrowing down your submissions to the available tax incentives which may be enjoyed by business establishments within Nigeria.

Based on the discussions between the Managing Partner and the Chairman of the Nigerian Business Forum, the following areas which should serve as guide for your presentation were highlighted:

  1. Objectives of Tax Incentives
  2. Available Tax Incentives in the Export Processing Zones in Nigeria

The Managing Partner is currently on six weeks annual leave abroad and has asked you to review the above using the guidelines provided.

You are well trained to use Power Point Microsoft Application to present this kind of report to the select group. This means that the presentation must be outlined in clear terms because of the limited time available.

You are required to prepare your presentation to cover:
a. Introduction (2 Marks)
b. Objectives of Tax Incentives (4 Marks)
c. Tax Incentives for companies operating within the Export Processing Zone (14 Marks)

(Total 20 Marks)

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  • 6 Marks

AT – Nov 2014 – L3 – SB – Q2c – Corporate Tax Compliance and Reporting

Determine whether Maidogo Limited’s revenue recognition change is a policy change and calculate adjusted revenue for NIXAQ.

Maidogo Limited sells NIXAQ, a product manufactured by it, from several retail outlets. In previous years, the company has undertaken responsibility for fitting the product in customers’ premises. Customers pay for the product at the time they are ordered. The average length of time it takes from ordering to its fitting is 14 days. In previous years, Maidogo Limited had not recognised a sale in its books until the product had been successfully fitted because the rectification costs of any fitting error would be expensive.

With effect from 1 April, 2013, Maidogo Limited changed its method of trading by sub-contracting the fitting to approved contractors. Under this policy, the sub-contractors are paid by Maidogo Limited and they (the sub-contractors) are liable for any errors made in the fitting. Consequently, Maidogo Limited is proposing to recognise sales when customers order and pay for the goods rather than when they have been fitted.

Details of the relevant sales figures are:

  • Sales made in retail outlets for the year to 31 March, 2014: N69,000,000
  • Sales value of NIXAQ fitted in the 14 days to 14 April, 2013: N3,600,000
  • Sales value of NIXAQ fitted in the 14 days to 14 April, 2014: N4,800,000

Note:
The sales value of NIXAQ in the 14 days to 14 April, 2013 is not included in the annual sales figure of N69 million, but those for the 14 days to 14 April, 2014 are included.

Required:

  1. Discuss whether the above represents a change in accounting policy.
  2. Calculate the amount to include in revenue for NIXAQ for the year to 31 March, 2014.

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  • 7 Marks

AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15 million on profits before tax of N105 million, resulting in an effective tax rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30 million on a profit before tax of N90 million, resulting in an effective rate of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, both companies have paid the same amount of tax of N24 million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income.

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