Topic: Double Taxation Reliefs and Credits

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IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Question

Non discrimination

A. Article 24 of the MTC deals with the elimination of tax discrimination in certain precise circumstances. It deals with discrimination on the basis of nationality, statelessness, the permanent establishment of an enterprise, non-residence specifically in relation to the deductibility of certain payments (e.g. interest and royalties), and non-resident direct investors ( share capital) B. Bearer Shares and Bearer Banks

Answer

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Tags: Article 24, Deductions, Nationality, Non-Discrimination, Ownership of Capital, Permanent Establishment, Statelessness
Level: Level 1

Topic: Double Taxation Reliefs and Credits, Tax Treaties and Interpretation
Series: AUGUST 2020

IT – Aug 2020 – L1 – Q1 – Double Taxation and Relief

Application of Article 18 of UK-Ghana DTA to tax income of an entertainer, including performance fees, royalties, and cancellation payments.

Question

CHARTERED INSTITUTE OF TAXATION, GHANA PAPER 9: INTERNATIONAL TAXATION FEB 2020 SITTINGS

QUESTION 1 Address Introduction This question deal with the application of article 18 (2) of the Double Tax Agreement (DTA) between Ghana and United Kingdom.

General principle under article 18 is stated below Para 1: Income derived by entertainer, from his personal activities exercised in the other Contracting State is taxed in that state. It can also be taxed in the other state, notwithstanding the provisions of Articles 7 and 15- 2 marks

Para 2: Income accruing to another person in respect of personal activities exercised by an entertainer or a sportsman in his capacity notwithstanding the provisions of Articles 7 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised. 2 marks

In determining whether income falls under Article 18 of Double Taxation Agreement between UK and Ghana or another article, the controlling factor will be whether the income in question is predominantly attributable to the performance artist or other activities or property rights. 2 marks a. Notwithstanding the provision in Article 7 and article 15 of the DTA, the £100,000 paid to Dzoboku Lullaby Ltd for the public performance of the Professor will be tax in the UK under Article 18(1) and (2). It is also taxable in Ghana under section 3 and 5 of Income tax Act 896. 2 marks b. The nature of this income requires that the image for advert amount to an exploitation of right, taxable under article 12 – Royalty.

Commentary to the Article 18(1), provided that in general, other Articles would apply whenever there was no direct link between the income and a public exhibition by the performer in the country concerned. As result this income will be taxable in the UK. It may also be tax in Ghana. 2 marks c. Where similar income which could not directly be attributed to such performances or appearances would fall under the standard rules of Article 7 or Article 15 as the case may be. Payments received in the event of the cancellation of a performance in the Gibson Hall are outside the scope of Article 18 and fall under Articles 7. That income is taxable in Ghana only under section 3 and section 5 of the Income Tax Act 896. 2 marks d. 2% of the gate proceeds paid to Dzoboku lullaby. This income relates directly to the appearance of the Professor. So, notwithstanding the provision in Article 7 and article 15 of the DTA, the amount paid to Dzoboku Lullaby Ltd for the for the gate proceeds in respect of public performance of the Professor will be tax in the UK under Article 18(1) and (2). It is also taxable in Ghana under section 3 and 5 of Income tax Act 896. 2 marks e. 20% of income that accrued from businesses that advertised and paid to Dzoboku Lullaby Ltd will be tax in the UK under article 18 (1) and (2). It will also be tax in Ghana under section 3 and 5 of the Act 896. 2 marks

Conclusion Subject to the aforementioned, the HMRC, is justified in assessing the income for tax in a, b, d and e. Income stream c is only taxable in Ghana

Answer

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Tags: Article 18, Double Taxation Agreement, Entertainer Income, Income Tax Act 896, Royalty, Taxation of Non-Residents, UK-Ghana DTA
Level: Level 1

Topic: Double Taxation Reliefs and Credits
Series: AUGUST 2020

ATAX – May 2019 – L3 – Q5c – Double Taxation Reliefs and Credits

Advise on double taxation relief for SOKGlobal Limited and compute the applicable relief.

Question

SOKGlobal Limited is a wholly owned Nigerian company that deals with stationery items. It has a functional business unit in Cape Town, South Africa. The company’s operating results for the year ended December 31, 2017, are as follows:

Profit attributable to South Africa business: ₦8,740
Capital allowances agreed with tax officials for Nigeria and South Africa businesses were ₦5,500,000 and ₦2,210,000, respectively.

Required:
Advise the company on the double taxation relief applicable to the company, showing the necessary computations.

Answer

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Tags: Corporate Tax, Double Taxation, Foreign Tax Credit, International Taxation, Tax Relief
Level: Level 3

Topic: Double Taxation Reliefs and Credits, Taxation of Companies

ATAX – May 2019 – L3 – Q5b – Double Taxation Reliefs and Credits

State provisions on business profits, dividends, and director's fees under double taxation arrangements between countries.

Question

With respect to double taxation arrangements, state precisely the provisions on the following:

i. Business profits not arising through a permanent establishment. (2 Marks)
ii. Dividend derived by one company resident in one country from another company resident in another country.
iii. Directors’ fees and other similar payments derived by a resident of a country in his capacity as a director of a company which is a resident of another country.

Answer

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Tags: Business Profits, Directors’ Fees, Dividend, Double Taxation, Tax treaties
Level: Level 3

Topic: Double Taxation Reliefs and Credits

ATAX – May 2019 – L3 – Q5a – Double Taxation Reliefs and Credits

State provisions regarding double taxation agreements between Nigeria and another country, as provided in Sections 34 and 35 of the Companies Income Tax Act.

Question

a. State four of the specific provisions of the law as provided in Sections 34 and 35 of the Companies Income Tax Act Cap C2 LFN 2004 (as amended) regarding where there is a double taxation agreement between one country and Nigeria. (2 Marks)

Answer

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Level: Level 3

Topic: Double Taxation Reliefs and Credits

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

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

Question

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)

Answer

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Tags: Double Taxation, Individual Income Tax, International Taxation, Residency Rules, Tax Compliance, Tax Mitigation
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: NOV 2014

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.

Question

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:

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

Answer

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Tags: Double taxation relief, Foreign Taxation, Income Tax Computation, International Taxation, Tax Compliance, Tax Liability
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: NOV 2014

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

Question

Abakali Limited is a company engaged in the manufacturing of three variants of beverages. The products of the company are well received by consumers, as the company now controls about 55% of the domestic market. The “chocolate” brand is the top earner for the company. According to a recent newspaper review, “it has the same quality as those imported into the country from the western world.”

The Board of the company, at one of its meetings, decided to enter the West African market in 2024 and, by 2026, the European market, through:

Establishment of depots in major cities of four neighboring countries (Republic of Benin, Togo, Ghana, and Niger) with goods transported by road.
Incorporation of a branch in a European country, initially serving as a depot, but within two years, full production will commence.

As emphasized by one of the directors, the main challenge the company must address is the strategy to mitigate the negative impact of high tax rates (in Europe and West African countries) on profits to achieve better returns on investment.

A director, previously employed by an international company, suggested using “treaty shopping” as a tax planning strategy for locating the branch office in Europe. He also pointed out that the Economic Community of West African States (ECOWAS) common external tariff framework provides a solution to different tax regimes in the sub-region.

Most Board members are not familiar with “treaty shopping” or the ECOWAS common external tariff framework, and they have requested professional advice on these matters.

The Managing Director has approached your professional accounting firm for guidance on the key issues raised in the meeting.

Required:

As the officer designated to handle this task, write a report to your Principal Partner for review before sending it to the client. The report should address the following concerns of the client:

a. Explanation of the concept and practice of “treaty shopping” (6 Marks)

b. Discussion on the strategies employed by various countries in curbing treaty shopping in international transactions (2 Marks)

c. Discussion on the features of the ECOWAS common external tariff framework (4 Marks)

d. Comment on the trade defense measures put in place to guide the operations of the common external tariff framework (3 Marks)

(Total 15 Marks)

Answer

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Tags: Cross-border taxation, ECOWAS, External Tariff, Tax Planning, Treaty Shopping, West African Markets
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2018

AT – May 2024 – L3 – SB – Q3 – Double Taxation Reliefs and Credits

Calculation of double taxation relief and tax liabilities for Lagode Nigeria, including implications of double taxation treaties.

Question

Lagode Nigeria Limited, based in Lagos, Nigeria, commenced operations as a manufacturer of indigenous fabrics in 2013. Products are sold to wholesalers and retailers in Nigeria and to Africans in diaspora, particularly during annual holiday periods. A market survey in 2018 revealed a lack of local Nigerian fabric manufacturers in North America, prompting the company to establish Kuramo Incorp. in Ottawa, Canada, which began operations in January 2020.

The operating results for both locations for the year ended December 31, 2022, are as follows:

Description	Lagos, Nigeria (N’000)	Ottawa, Canada (N’000)
Gross turnover	180,200	330,800
Less: Expenses
– Cost of materials	72,100	162,320
– Wages and salaries	18,050	42,120
– Finance costs	1,400	3,150
– Miscellaneous	4,600	5,270
– Depreciation	5,760	8,750
– Share of head office expenses	25,600	16,040
– Foreign tax paid	–	18,900
Total expenses	127,510	256,550
Net profit	52,690	74,250

Additional Information:

Ottawa branch is a wholly owned Nigerian company.
Miscellaneous expenses are allowable for tax purposes.
Capital allowances agreed with Nigerian tax authorities:

Location Capital Allowance (N’000)

Lagos operations 6,800

Ottawa operations 9,900
The exchange rate for Canadian operations is fair.
No double taxation agreement exists between Nigeria and Canada.

Location	Capital Allowance (N’000)
Lagos operations	6,800
Ottawa operations	9,900

Required:
In accordance with the provisions of the Companies Income Tax Act Cap. C21 LFN 2004 (as amended), you are to: a. Compute the double taxation relief (if any) available to the Nigerian company

(9 Marks)
b. Advise on the tax liabilities of the Nigerian company for the relevant assessment year (9 Marks)
c. Comment on the implications of double taxation agreements on withholding tax deductions by a company resident in a country:
(i) With no double taxation agreement with Nigeria

(1 Mark)
(ii) With double taxation treaty with Nigeria (1 Mark)
Total: 20 Marks

Answer

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Tags: Commonwealth Tax Rate, Companies Income Tax, Double taxation relief, Foreign Operations, Withholding Tax
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2024

AT – May 2018 – L3 – SB – Q4b – Double Taxation Reliefs and Credits

Calculate the final tax liability for Oduifa Construction Ltd., considering foreign income and double taxation relief.

Question

Engineer Kole Ahmed manages a wholly owned Nigerian engineering outfit – Oduifa Construction Company Limited, based at Ikeja and incorporated in February 2010.

Given the challenging economic environment in Nigeria and inconsistent government policies, the company’s management embarked on foreign diversification of income. They sourced and secured some contracts in the United Kingdom where they have operational activities in London.

Extracts from the Statement of Profit or Loss for the year ended December 31, 2015, for Lagos and London operations, are as follows:

Description	Lagos (N)	London (N)	Global (N)
Revenue	68,000,000	70,200,000	138,200,000
Direct expenses	(43,410,000)	(44,050,000)	(87,460,000)
Gross profit	24,590,000	26,150,000	50,740,000
Administrative expenses:
– Staff salaries	1,200,000	1,440,000	2,640,000
– Rent and rates	840,000	960,000	1,800,000
– Motor vehicle expenses	136,000	148,000	284,000
– Repairs and maintenance	92,000	106,500	198,500
– Utilities	76,840	81,000	157,840
– Business insurances	55,000	60,000	115,000

Capital allowances: N725,000.

Required: Compute the final tax liability of the company for the relevant assessment year. (15 Marks)

Answer

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Tags: Companies Income Tax, Double taxation relief, Foreign income, Tertiary Education Tax
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2018

IT – Aug 2020 – L1 – Q4- Non-Discrimination

Discuss non-discrimination under Article 24 of MTC regarding nationality, statelessness, PE, deductions, and capital ownership.

Question

Non discrimination

Answer

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Tags: Article 24, Deductions, Nationality, Non-Discrimination, Ownership of Capital, Permanent Establishment, Statelessness
Level: Level 1

Topic: Double Taxation Reliefs and Credits, Tax Treaties and Interpretation
Series: AUGUST 2020

IT – Aug 2020 – L1 – Q1 – Double Taxation and Relief

Application of Article 18 of UK-Ghana DTA to tax income of an entertainer, including performance fees, royalties, and cancellation payments.

Question

CHARTERED INSTITUTE OF TAXATION, GHANA PAPER 9: INTERNATIONAL TAXATION FEB 2020 SITTINGS

QUESTION 1 Address Introduction This question deal with the application of article 18 (2) of the Double Tax Agreement (DTA) between Ghana and United Kingdom.

Conclusion Subject to the aforementioned, the HMRC, is justified in assessing the income for tax in a, b, d and e. Income stream c is only taxable in Ghana

Answer

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Tags: Article 18, Double Taxation Agreement, Entertainer Income, Income Tax Act 896, Royalty, Taxation of Non-Residents, UK-Ghana DTA
Level: Level 1

Topic: Double Taxation Reliefs and Credits
Series: AUGUST 2020

ATAX – May 2019 – L3 – Q5c – Double Taxation Reliefs and Credits

Advise on double taxation relief for SOKGlobal Limited and compute the applicable relief.

Question

Profit attributable to South Africa business: ₦8,740
Capital allowances agreed with tax officials for Nigeria and South Africa businesses were ₦5,500,000 and ₦2,210,000, respectively.

Required:
Advise the company on the double taxation relief applicable to the company, showing the necessary computations.

Answer

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Tags: Corporate Tax, Double Taxation, Foreign Tax Credit, International Taxation, Tax Relief
Level: Level 3

Topic: Double Taxation Reliefs and Credits, Taxation of Companies

ATAX – May 2019 – L3 – Q5b – Double Taxation Reliefs and Credits

State provisions on business profits, dividends, and director's fees under double taxation arrangements between countries.

Question

With respect to double taxation arrangements, state precisely the provisions on the following:

Answer

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Tags: Business Profits, Directors’ Fees, Dividend, Double Taxation, Tax treaties
Level: Level 3

Topic: Double Taxation Reliefs and Credits

ATAX – May 2019 – L3 – Q5a – Double Taxation Reliefs and Credits

State provisions regarding double taxation agreements between Nigeria and another country, as provided in Sections 34 and 35 of the Companies Income Tax Act.

Question

Answer

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Tags: Companies Income Tax Act, Double Taxation, International Taxation, Tax Relief, Tax treaties
Level: Level 3

Topic: Double Taxation Reliefs and Credits

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

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

Question

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.

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)

Answer

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Tags: Double Taxation, Individual Income Tax, International Taxation, Residency Rules, Tax Compliance, Tax Mitigation
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: NOV 2014

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.

Question

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:

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

Answer

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Tags: Double taxation relief, Foreign Taxation, Income Tax Computation, International Taxation, Tax Compliance, Tax Liability
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: NOV 2014

AT – May 2024 – L3 – SC – Q7 – Double Taxation Reliefs and Credits

Explain treaty shopping, strategies to mitigate it, ECOWAS common external tariff features, and trade defense measures.

Question

The Board of the company, at one of its meetings, decided to enter the West African market in 2024 and, by 2026, the European market, through:

Establishment of depots in major cities of four neighboring countries (Republic of Benin, Togo, Ghana, and Niger) with goods transported by road.
Incorporation of a branch in a European country, initially serving as a depot, but within two years, full production will commence.

Most Board members are not familiar with “treaty shopping” or the ECOWAS common external tariff framework, and they have requested professional advice on these matters.

The Managing Director has approached your professional accounting firm for guidance on the key issues raised in the meeting.

Required:

As the officer designated to handle this task, write a report to your Principal Partner for review before sending it to the client. The report should address the following concerns of the client:

a. Explanation of the concept and practice of “treaty shopping” (6 Marks)

b. Discussion on the strategies employed by various countries in curbing treaty shopping in international transactions (2 Marks)

c. Discussion on the features of the ECOWAS common external tariff framework (4 Marks)

d. Comment on the trade defense measures put in place to guide the operations of the common external tariff framework (3 Marks)

(Total 15 Marks)

Answer

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Tags: Cross-border taxation, ECOWAS, External Tariff, Tax Planning, Treaty Shopping, West African Markets
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2018

AT – May 2024 – L3 – SB – Q3 – Double Taxation Reliefs and Credits

Calculation of double taxation relief and tax liabilities for Lagode Nigeria, including implications of double taxation treaties.

Question

The operating results for both locations for the year ended December 31, 2022, are as follows:

Description	Lagos, Nigeria (N’000)	Ottawa, Canada (N’000)
Gross turnover	180,200	330,800
Less: Expenses
– Cost of materials	72,100	162,320
– Wages and salaries	18,050	42,120
– Finance costs	1,400	3,150
– Miscellaneous	4,600	5,270
– Depreciation	5,760	8,750
– Share of head office expenses	25,600	16,040
– Foreign tax paid	–	18,900
Total expenses	127,510	256,550
Net profit	52,690	74,250

Additional Information:

Ottawa branch is a wholly owned Nigerian company.
Miscellaneous expenses are allowable for tax purposes.
Capital allowances agreed with Nigerian tax authorities:

Location Capital Allowance (N’000)

Lagos operations 6,800

Ottawa operations 9,900
The exchange rate for Canadian operations is fair.
No double taxation agreement exists between Nigeria and Canada.

Location	Capital Allowance (N’000)
Lagos operations	6,800
Ottawa operations	9,900

(1 Mark)
(ii) With double taxation treaty with Nigeria (1 Mark)
Total: 20 Marks

Answer

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Tags: Commonwealth Tax Rate, Companies Income Tax, Double taxation relief, Foreign Operations, Withholding Tax
Level: Level 3

Topic: Double Taxation Reliefs and Credits
Series: MAY 2024

AT – May 2018 – L3 – SB – Q4b – Double Taxation Reliefs and Credits

Calculate the final tax liability for Oduifa Construction Ltd., considering foreign income and double taxation relief.

Question

Engineer Kole Ahmed manages a wholly owned Nigerian engineering outfit – Oduifa Construction Company Limited, based at Ikeja and incorporated in February 2010.

Extracts from the Statement of Profit or Loss for the year ended December 31, 2015, for Lagos and London operations, are as follows:

Description	Lagos (N)	London (N)	Global (N)
Revenue	68,000,000	70,200,000	138,200,000
Direct expenses	(43,410,000)	(44,050,000)	(87,460,000)
Gross profit	24,590,000	26,150,000	50,740,000
Administrative expenses:
– Staff salaries	1,200,000	1,440,000	2,640,000
– Rent and rates	840,000	960,000	1,800,000
– Motor vehicle expenses	136,000	148,000	284,000
– Repairs and maintenance	92,000	106,500	198,500
– Utilities	76,840	81,000	157,840
– Business insurances	55,000	60,000	115,000

Capital allowances: N725,000.

Required: Compute the final tax liability of the company for the relevant assessment year. (15 Marks)

Answer

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Tags: Companies Income Tax, Double taxation relief, Foreign income, Tertiary Education Tax
Level: Level 3