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 2023 – L3 – Q1 – Taxation of Specialized Businesses

Analyze the tax implications for Hyland Nigeria Ltd, including adjusted profit, tax payable, dividend tax implications, and tax benefits for reconstituted companies.

Hyland Nigeria Limited commenced business as a manufacturer of stationery on January 1, 2021. The company, in December 2020, acquired all the assets and liabilities of a foreign company operating in Nigeria, Lowland Incorporated, and reconstituted it for turnaround and profitability.

The directors of the newly reconstituted company have considered the draft financial statements and annual tax returns for the year ended December 31, 2021. During a board meeting, there was disagreement over the tax treatment of dividends received (N3,600,000) from equity holdings in another Nigerian public limited liability company. The dividends are also part of the proposed profits to be distributed to shareholders.

Additionally, one director suggested that as a reconstituted company, Hyland Nigeria Limited may qualify for tax reliefs or incentives that could positively affect profitability. Following the board’s decision, the Managing Director contacted your firm to provide professional advice on these matters.

The following financial information is extracted from the company’s records:

The following additional relevant information was provided:
(i) Subscription and donations consisted of:

(ii) Allowance for doubtful debts included:

(iii) Repairs and maintenance was made up of:

(iv) Legal and professional fees included:

(v) Other operating expenses were:

(vi) Tax written down values of qualifying capital expenditure (QCE) as at December 31, 2020:

(vii) Additional assets acquired during the year ended December 31, 2021:

(viii) Unrelieved losses as at December 31, 2020 was N55,900,000.
(ix) Unutilised capital allowances as at December 31, 2020 was N16,155.000.

Required:

  1. Calculate the Adjusted Profit of the company for the year ended December 31, 2021.
  2. Compute the Tax Payable for the relevant assessment year.
  3. Provide professional advice on the tax implications of the dividends received for the company and its shareholders.
  4. Comment on tax benefits/incentives applicable to a reconstituted company in Nigeria as per the Companies Income Tax Act 2004 (as amended).

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  • 15 Marks

ATAX – Nov 2016 – L3 – Q7 – Tax Planning and Management

Summarizes key points on tax planning, tax evasion, double taxation agreements, and non-tax factors for investment.

As the Chairman of a Tax Summit in Ikeja, Lagos State, the discussion topics were:

  1. Tax Planning, an Effective Method of Tax Avoidance
  2. Tax Evasion in a Growing Economy
  3. Double Taxation – The Provisions and the Impact
  4. Jurisdiction for Investment – Non-Tax Factors

You are required to:

a) Explain briefly Tax Planning and Anti-Avoidance Legislations put in place by the Government. (3 Marks)
b) Summarize situations that may involve Tax Evasion. (4 Marks)
c) Explain Double Taxation Agreement – Provisions and the Main Objectives. (4 Marks)
d) Summarize Non-tax factors that attract investors in choosing a business jurisdiction. (4 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q6b – Petroleum Profits Tax (PPT)

Determines assessable profit, chargeable profit, assessable tax, and chargeable tax for Bivenette Petroleum Company Limited.

Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from its financial statements for the year ended December 31, 2013 show the following information:

Additional Information:

  1. Petroleum Profits Tax rate: 85%
  2. Interest paid includes N12,000,000 paid to an affiliated company.
  3. Capital allowances agreed at N253,750,000.
  4. Operating costs include N302,000,000 paid to a company for information on oil prospect in Adamawa State.
  5. The company is entitled to an Investment Allowance of N173,000,000.

You are required to:

  • Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

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  • 4 Marks

ATAX – Nov 2016 – L3 – Q6a – Petroleum Profits Tax (PPT)

Explains concepts of Associated Gas and Downstream Activities under the Petroleum Profits Tax Act.

The administration of the Petroleum Profits Tax Act is under the charge and management of the Federal Inland Revenue Service with respect to Petroleum Profits Tax Act Cap P13 LFN 2004.

You are required to explain:

i) Associated Gas (2 Marks)
ii) Downstream Activities (2 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q5b – Tax Incentives and Reliefs

Calculates tax liabilities for a pioneer company and withholding tax on dividends during the pioneer period.

Ajanaku Nigeria Limited was incorporated as a pioneer company on March 15, 2011, focusing on aluminum roofing sheets. It received a Pioneer Certificate with Production Day as July 1, 2011. Extracts from its Audited Financial Statements are as follows:

Gross dividends declared:

  • 2013: N600,000
  • 2014: N1,500,000

Withholding tax rate on dividends for these years is 10%. Ignore Minimum Tax provisions. The initial tax relief period was not extended.

You are required to:

  • Compute the tax liabilities for the relevant years of assessment relating to Pioneer Status only.
  • State the amount of Withholding Tax due from the shareholders. (11 Marks)

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  • 4 Marks

ATAX – Nov 2016 – L3 – Q5a – Tax Incentives and Reliefs

Lists industries qualifying for pioneer status under the Industrial Development (Income Tax Relief) Act 1971.

One of the incentives available to industries in Nigeria is contained in the Industrial Development (Income Tax Relief) Act 1971, which grants tax holidays to companies in industries designated as “Pioneer Industries.”

You are required to:

a) State any FOUR industries that qualify to be regarded as Pioneer Industries. (4 Marks)

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  • 15 Marks

ATAX – Nov 2016 – L3 – Q4b – Corporate Tax Compliance and Reporting

Compute the relevant tax liabilities for Gringrin Nigeria Ltd. in scenarios with different accounting dates

Gringrin Nigeria Limited is proposing to embark on two courses of action:

i) Change its accounting date from March 31 to June 30; or
ii) Change its accounting date from March 31 to December 31.

The adjusted profits in each scenario are as follows:

  • Change to June 30:
Period Adjusted Profits (N’000)
Year ended March 31, 2011 30,000
Year ended March 31, 2012 33,000
Period ended June 30, 2013 (15 months) 78,000
Year ended June 30, 2014 34,000
  • Change to December 31:
Period Adjusted Profits (N’000)
Year ended March 31, 2011 50,000
Year ended March 31, 2012 60,000
Period ended December 31, 2013 (21 months) 180,000
Year ended December 31, 2014 70,000

As the Tax Consultant, you are required to:

Compute the relevant tax liabilities. (15 Marks)

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  • 5 Marks

ATAX – Nov 2016 – L3 – Q4a – Tax Planning and Management

Lists essential considerations for tax planning using a standard checklist.

Tax Planning is anticipatory and requires an understanding of tax laws. A Tax Consultant should be versed in these two areas to render excellent advisory services to clients, government, and other institutions.

Requirements:

a) State any FIVE matters that should be considered in Tax Planning, using a standard Tax Planning Checklist. (5 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 10 Marks

ATAX – Nov 2016 – L3 – Q2c – Petroleum Profits Tax (PPT)

Compute and explain the significance of adjusted profit, chargeable profit, and chargeable tax for Joji Petroleum Company.

Mr. Gillani Azurhi is considering investing in a petroleum company and has provided financial extracts of Joji Petroleum Company Limited for analysis.

Financial Data Provided:

Item N’000
Current year capital allowances 6,080
Previous years’ capital allowances b/f 8,901
Custom duty 125
Royalties not included in accounts 1,638
Loss brought forward 6,250
Petroleum Profits Tax payable 1,336

Tax Rate: 85%

Required:

Compute and explain the significance of each of the following:

i) Adjusted profit (9 Marks)
ii) Chargeable profit (2 Marks)
iii) Chargeable tax (2 Marks)

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