a) Tanji Enterprises Ltd. operates a Fuel Filling Station and a huge Supermarket in Tamale within the same premises. A joint tax audit team from the LTU Office visited Tanji and noted that Tanji supplies taxable and non-taxable goods and services to customers but fails to notice the split distinction between these services. The VAT team therefore has disallowed some claims and apportioned others to reflect the true VAT claimable.
Required:
i. Explain the VAT rules for goods supplied on sale or return.
ii. Discuss the apportionment of input tax for taxable and exempt supplies.
(b).Required:
Discuss the VAT rules on the timing of supply for the following:
i. Goods or services applied to own use, gifted, or supplied under hire purchase or finance lease.
ii. Continuous or metered supplies like electricity.
iii. Goods supplied under a hire purchase agreement or finance lease.
iv. Goods or services supplied under rental agreements or periodic payments.
(a). Dr. Ababio discusses an engagement she recently accepted with an investment banker with you for advice. She indicates that one of the recruiting inducements that convinced her to accept the position is a $300M loan from her employer. She will receive the loan proceeds on her first day of work and must sign a note to repay the loan plus accrued interest in five equal annual installments.
The employer will forgive any amount of the unpaid debt if Dr. Ababio dies, becomes disabled, or is terminated from employment through no fault of her own. Dr. Ababio’s contract provides that the employer will pay an annual bonus equal to each loan repayment. The contract stipulates that the bonus must be applied to the repayment of her loan.
Required:
i) Advise Dr. Ababio on the implications, if any, of this engagement provisions.
ii) Discuss any three provisions in the Tax Act which will support the position the Commissioner will take in respect of the taxability or otherwise of this engagement provision.
(b). The Free Zone Act declares a 10-year tax holiday for Free Zone Operators. Sweet Entities Inc. desires to set up in the Free Zone enclave but requires an understanding of the practical tax concessions granted to free operators. To this effect, the Tax Director of Sweet Entities Inc. requires that you do a practical presentation of the flow of the corporate tax-exempt concession as extended to the operator. He therefore provides you with the following business forecast for the first 10-year period as follows.
All figures in $M
Year
1
2
3
4
5
6
7
8
9
10
Adjusted Profit
10
60
150
500
1,000
1,000
1,000
520
600
620
Capital Allowance
1000
600
300
150
50
20
20
600
340
200
Compute the tax position, if any, of Sweet Entities Inc. for the exempt period.
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.
As part of the post qualification requirements of The Chartered Institute of Taxation, you have been invited to do a presentation on the topic “Venture Capital Fund” to a select group of business men, tax professionals, financial institutions and students.
Invitation
Members of the Ghana Institute of Taxation and the Institute of Bankers wish to use this opportunity to strengthen the cordial relationship subsisting between them and have therefore invited you to do a presentation on the tax effects of Venture Capital Operators as compared with that of the traditional financial institutions.
Required:
Please prepare a presentation as required under Invitation above clearly distinguishing between Tax concessions granted to a Venture Capital as compared with the Bank.
Mr. Nor Amid, the Human Capital Resource Person of Amanda Inc, an entity registered in France sends a brief note to you in respect of a duty tour of an employee as follows:
“Amanda is sending an employee to Ghana and I am hoping that you could provide guidance for Amanda. Our understanding is as that:
The employee is French and may be kept on the French payroll
The employee’s remuneration will be cross charged to Amanda in France and Ghana
The employee, according to French Tax Law, will be French for tax purposes
The employee will spend 40% or less of his time in France
The employee will spend between 40 to 60% of his time in Ghana and whilst in Ghana the employee will be accommodated in hotels, will have free use of car with fuel and free meal.
The employee will spend his time in Ghana from 7 to 25 days at a time depending on need.
Would you kindly provide us with a brief outline of the Ghanaian tax and social security implications for Amanda and the employee? Kindly note that Ghana has an operating ‘Double Tax Treaty’ with France.
Required:
(a). Please submit a memo to respond to the concerns raised by Mr. Nor Amid.
(b). Ghana has general tax-avoidance rules in the tax acts. Kindly discuss any three practice methods adopted by the Revenue Agencies to regulate transfer pricing between related parties?
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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.
(a). Mr. Joe Mensah, the MD of JoyCo Ltd is required to submit his company’s financial statement for the year 2006 to the Board next Tuesday. One particular item which Mr. Mensah intends to push for Board approval is a declaration of dividends consisting of a capitalization of profits to firm up member’s confidence in the earnings power of their investment in Joyco Ltd.
Mr. Joe Mensah has approached you with this strategy and requires that you advise on the tax concerns and advantages that capitalization of profits could have under the Internal Revenue.
Required:
Please advise Mr. Mensah as required above on this strategy.
(b). At a tax forum organised by the Chartered Institute of Taxation, a VAT representative submitted that “because of the right to deduct input VAT, VAT should be neutral for persons subject to VAT. A supplier of goods and services charges output VAT on sales and deducts input VAT on purchases, paying the balance to the VAT Service”
Mr. Anamang strongly objected to this simple statement and proposed a modification to it. He proposed “however, there is often a mismatch between theory and reality. VAT administrations for companies pose grave problems, but there are benefits in a VAT grouping scheme.
Required:
Kindly discuss any four VAT imposed problems that could be eliminated where group members are permitted to report a VAT transaction as a group rather than as a single taxable person.
The Council of the Chartered Institute of Taxation, Ghana (CITG) has invited you to speak at a Continuous Development Program (CPD) on the topic “The distinction between tax planning schemes and tax avoidance arrangements under Ghanaian tax laws”.
In the letter of invitation, the Council indicated that you are to submit a detailed write-up of your presentation.
Required
With the aid of appropriate examples and specific references to Ghanaian tax law provisions, write in sufficient detail, the content of your presentation.
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.
(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.
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.
Due to the aggressive stance of the GRA in recent times, the urgency and pace of submission of tax returns to the GRA has more than doubled. The Chief Finance Officer of SKABY BANK Ltd. requires to discuss Skaby’s Tax returns for year 2014 and 2015 by close of day today to enable him engage the Finance committee of the Board with the various tax liabilities arising from the two years’ banking activities and also access the Bank’s tax compliance level.
As Tax Consultant to SKABY BANK Ltd., extracts of the 2014 and 2015 financial statement which read as follows, has been deposited on your table for your necessary action.
SKABY COMMERCIAL BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
Note
2015 GHC’000
2014 GHC’000
505,055.00
377,000.00
2
(82,200.00)
(51,300.00)
422,855.00
325,700.00
398,444.00
75,555.00
(10,424.00)
(8,200.00)
88,020.00
67,355.00
24,800.00
15,980.00
45,620.00
8,300.00
30,420.00
24,280.00
541,295.00
417,335.00
9,000.00
7,992.00
550,295.00
409,343.00
225,000.00
215,560.00
325,295.00
193,783.00
82,000.00
32,000.00
243,295.00
161,783.00
2015 GHC’000
2014 GHC’000
242,000.00
180,600.00
256,920.00
190,600.00
6,135.00
5,800.00
505,055.00
377,000.00
b) Necessary default certificates of GHC20,000.00 have been received on income included in investment return for year 2015.
Note 2: a) Interest Expense paid
2015 GHC’000
2014 GHC’000
Borrowings
9,900.00
8,900.00
Current and Savings A/c
45,650.00
20,500.00
Time and Other deposits
26,650.00
21,900.00
82,200.00
51,300.00
b) $20%$ of interest expense payments’ mandatory withholding tax deduction has not been made.
Note 3: Fees and Commission Income
2015 GHC’000
2014 GHC’000
Commission on letters of credit
3,200.00
2,650.00
Commission on Turnover
39,050.00
34,000.00
Processing fees
5,000.00
4,500.00
Commission of foreign services
2,200.00
3,060.00
Other fees and Commissions
48,994.00
31,345.00
98,444.00
75,555.00
Note 4: Other Income
2015 GHC’000
2014 GHC’000
Dividend Income
2,000.00
Bad Debt recovery
3,000.00
Profit on sale of property
2,200.00
Rental Income
2,470.00
2,200.00
Other Income
3,100.00
8,300.00
8,300.00
Note 5 a). Operating Expenses Include
2015 GHC’000
2014 GHC’000
Advertising
2,000.00
2,000.00
Rental of premises
45,000.00
40,450.00
Directors fees
2,100.00
3,000.00
Depreciation
16,000.00
15,000.00
Amortization
6,000.00
2,500.00
Donation to MD on death of mother
62,500.00
Purchase of computers
50,000.00
2,000.00
Goodwill paid
20,000.00
25,000.00
b). Tax on rental of premises has not been accrued or paid to the GRA.
Note 6: Income Tax
2015 GHC’000
2014 GHC’000
Balance b/f
200.00
Paid for year
65,000.00
20,000.00
Deferred Tax
17,000.00
10,000.00
Total
82,000.00
30,200.00
Note 7: Extracts from the Property, Plant and Equipment schedule is as below
2015
Land & Building GHC’000
Equipment Further GHC’000
Computers GHC’000
Motor Vehicles GHC’000
Total GHC’000
Cost as at 1 January 2015
50,000.00
53,000.00
32,000.00
57,000.00
192,000.00
Additions for year
2,500.00
12,200.00
7,500.00
2,550.00
24,750.00
Disposals
–
(250.00)
(350.00)
(2,300.00)
(2,900.00)
Write-off
–
(200.00)
(45.00)
–
(245.00)
At 31 December 2015
52,500.00
64,750.00
39,105.00
57,250.00
213,605.00
Note 8 Extracts from the Intangible Assets (GOODWILL) Register is as below
2015 GHC’000
2014 GHC’000
Cost as at 1 January 2015
7,500.00
Acquisition
10,500.00
7,500.00
Bal at year end 2015
18,000.00
7,500.00
Management policy for writing off goodwill is 10 years.
Required
Kindly present to the Chief Finance Office tax information on;
a) Corporate tax computation for year 2015 and 2014,
(10 marks)
b) Capital Allowance computation for year 2015 and 2014,
(8 marks)
c) Skabi’s Tax Position for year 2015 and 2014,
(2 marks)
d) Withholding taxes payable by Skabi to the GRA.
(2 marks)
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.
(a) Does your country have bonded warehouses in which goods may be stored without triggering a taxable presence?
Required
Discuss three advantages and three disadvantages that the operation of a bonded warehouse will extend to traders in the payment of taxes.
b) Professor Zoel is a visiting professor from the University of South Africa, on sabbaticals in Ghana. He was invited by the head of the Business School, Angella University here in Ghana on 1 January 2016. After a three week closed door brush up, he was persuaded by his host, Prof Mensah, to fill in a vacancy in the department and also to stay in Ghana to the end of his sabbaticals. Prof Zoel has decided to take up the teaching appointment with Angella University.
AngellaUniversity intends to pay Prof Zoel from grants received from Columbia University (USA) marked for a special research work in Ghana. Prof Mensah has assured Prof Zoel that his (Prof Zoel) pay will be paid in USD directly to his bank account in South Africa. Prof Zoel will also receive standard benefit package in cash (relocation allowance, Ghana business travel expense allowance, accommodation, etc.) which will be paid/given to him in Ghana by Angella University.
His salary will be paid by Columbia University on a bimonthly basis and there will be no chargeback of any cost to any other location.
Prof Zoel finds his new working conditions particularly rewarding since he will additionally receive his full Professor’s salary as normally paid by his mother University employer in South Africa.
Prof Zoel is a little disturbed because he was not sure about the tax implications of his combined multiple salaries as he earns allowances in Ghana, is paid by Columbia University for work done in Ghana into his bank account in South Africa and additionally earns his professorial salary in South Africa.
As a Chartered Tax Advisor, Prof Zoel has referred this apparent tax difficulty to you for your advice. Prof Zoel intends to live the full term of his sabbaticals in Ghana which could run for at least 2 years.
Required:
Kindly identify and advise Prof Zoel on the tax implications of his entire earnings for this sabbatical in Ghana.
VAT is chargeable on imports. The basic information required to facilitate the VAT charge on imported goods and services is the value of the goods or services. At a recent meeting organized by the Ghana National Chamber of Commerce and Industry to educate members on the taxable value for determining the VAT on imported goods and services you, as a renowned tax consultant, were invited to discuss this issue.
The topic you are to speak on is “What is the taxable value for determining the VAT on imported goods and services.
Required
a) As the preferred consultant, please present to the Chamber a discussion paper on the taxable value for determining the VAT on imported goods and services.
b). Also indicate in your presentation the procedures that must be followed before payment of VAT on the import of services is made.
(a) Isak Esh Ltd registered to do business in Ghana in October 2012. The CEO read in the papers that the Ghana Revenue Authority intends to embark on a mop up exercise before year 2012 will end. The CEO has been briefed by the Chief Finance Officer of Isak Esh Ltd about his company’s inability to have registered with the GRA for VAT purposes. As Chartered Tax Advisor, the CEO has approached you for advice.
Required Please advice Isak Esh Ltd on its VAT responsibility in Ghana.
(b). As tax advisor to Tanko Enterprises Ltd., you receive a note from the Chief Finance Officer as follows: “We have purchased Processing Plant and Machinery from a company registered in Mauritius. The company has agreed not to sell this machinery to any other party in Ghana for the next ten (10) years and therefore is charging us additional fee of $100,000. Should we pay? What are the tax implications of the payment of the price of the machinery and the additional fee in Ghana? “
Required a) Please advice the Chief Finance Officer on Tanko’s tax responsibilities as detailed in the Tax Acts in respect of such transactions.
b) Discuss the duty and VAT payable on the import of machinery into Ghana.
The President of America Is Great (AIG) Group, a US Corporation, is exploring the possibility of acquiring a fifty-five percent stake in Fluid Logistics Ghana Limited. The stated capital of Fluid Logistics Ghana Limited is GH₵1,500,000. AIG Corporation intends providing a loan of GH₵6,500,000 to Fluid Logistics Ghana Limited when the transaction for the acquisition of the fifty-five percent stake is completed. The President of AIG Corporation is seeking your advice on the tax implications of the proposed transactions.
Required: Advise the President on: i. The income tax implications of the acquisition of a fifty-five percent stake in Fluid Logistics Ghana Limited. 9 marks ii. The income tax implications of providing the loan of GH₵6,500,000. 9 marks iii. The tax planning options available to minimize the tax effects of the proposed transactions.
