Topic: International taxation

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ATAX – May 2017 – L3 – Q4b – International Taxation

Explain the term “Tax Havens”, factors for considering them, and list five countries that are tax havens.

Question

In the words of Benjamin Franklin, “the only things that are certain are death and taxes”. However, in some countries, taxes are not necessarily certain.

Required:
i. Explain briefly the term “Tax Havens”. (4 Marks)
ii. State THREE factors in considering whether a jurisdiction is a Tax Haven. (3 Marks)
iii. State FIVE countries that are Tax Havens. (5 Marks)

Answer

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Tags: International Taxation, Tax Havens, Tax Jurisdiction
Level: Level 3

Topic: International taxation

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.

Question

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

Tax Planning, an Effective Method of Tax Avoidance
Tax Evasion in a Growing Economy
Double Taxation – The Provisions and the Impact
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)

Answer

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Tags: Double Taxation Agreement, Investment Factors, Tax avoidance, Tax Evasion, Tax Jurisdiction
Level: Level 3

Topic: International taxation, Tax Planning and Management

ATAX – Nov 2021 – L3 – Q6 – International Taxation

Explains BEPS, its techniques, OECD initiatives, and implications for corporate tax strategies.

Question

At a workshop on “Base Erosion and Profit Shifting (BEPS)” organized by the Federal Ministry of Industries, a resource person explained that BEPS is a corporate tax planning strategy used by multinational corporations to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions, thereby eroding the tax base of the higher-tax jurisdictions.

One of the participants, an engineer and the General Manager of a leading manufacturing outfit based in Jos, with a head office in a European country, struggled to understand the concepts discussed. After seeking clarification from other participants without success, he approached you as the company’s Tax Manager to explain BEPS and whether it would be beneficial for the company (in collaboration with the head office) to engage in such practices.

Required:

As the company’s Tax Manager, you are to draft a paper addressing the General Manager’s concerns, covering the following:

a. Distinction between base erosion and profit shifting. (3 Marks)
b. Techniques of base erosion and profit shifting. (4 Marks)
c. The six key action initiatives of the Organisation for Economic Co-operation and Development (OECD) against base erosion and profit shifting. (6 Marks)
d. The implications of engaging in base erosion and profit shifting. (2 Marks)

Answer

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Tags: BEPS, Corporate Tax Strategy, OECD Initiatives, Profit Shifting, Tax avoidance
Level: Level 3

Topic: International taxation

ATAX – Nov 2021 – L3 – Q5 – International Taxation

Discusses the conditions for significant economic presence and the tax implications for TWITTY Incorporation.

Question

The rapid growth in information and communication technology in Nigeria has brought with it boundless opportunities and changes in the way business activities are conducted. A significant number of transactions in Nigeria, in recent times, are consummated using mobile devices and online payments. In the same vein, the online platforms (mostly operated by international private entities) are perceived by various governments in developing countries (Nigeria inclusive) as undermining the economic interests of their host countries through non-payment of taxes, despite their significant economic presence.

In light of the above, the Finance Act 2019 provides for the treatment of digital and other service providers concerning the significant economic presence of a foreign entity. This provision was followed up with the issuance of Companies Income Tax (Significant Economic Presence) Order 2020 by the Federal Government of Nigeria.

You have been contacted by a foreign online outfit with interest in mobile networking and consultancy, TWITTY Incorporation, California, USA, through its official partner in Nigeria, MAAbioro Partners, to explain issues on the significant economic presence of a foreign entity, deemed to be operating in Nigeria.

Required:

As a tax consultant to TWITTY Incorporation, draft a report explaining the following areas:

a. The objectives of the relevant provisions of Finance Act 2019 and Companies Income Tax (Significant Economic Presence) Order 2020 concerning the significant economic presence of a foreign entity. (3 Marks)
b. Conditions for the determination of significant economic presence for digital activities. (5 Marks)
c. Determination of significant economic presence for technical and consultancy services. (2 Marks)
d. Activities exempted from significant economic presence in Nigeria. (3 Marks)
e. The tax implications of the Order 2020 on the activities of TWITTY Incorporation. (2 Marks)

Answer

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Tags: Compliance, Digital Economy, Finance Act, International Taxation, Significant Economic Presence
Level: Level 3

Topic: International taxation

ATAX – Nov 2020 – Q5 – International Taxation

Explain issues regarding tax havens, including key factors and competitive strategies.

Question

Tax haven is a state, country, or territory where certain taxes are levied at a low rate or not at all. This has created problems for other countries as their products and services are no longer competitive in international markets. However, various international organizations, governments, and other stakeholders are still handicapped in mitigating or totally eliminating this malaise that is threatening the competitive global market.

You have been invited by a manufacturing outfit to help explain certain issues regarding tax haven in practice.

Required:
a. From the perspective of the Organisation for Economic Co-operation and Development (OECD), explain THREE key factors in deciding whether a jurisdiction is a tax haven or not. (6 Marks)
b. How can a country use its tax jurisdiction to address the issue of competition from a tax haven? (5 Marks)
c. Explain the advantages of and provide the criticisms against tax haven. (9 Marks)

Answer

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Tags: International tax, OECD, Tax Havens
Level: Level 3

Topic: International taxation

ATAX – Nov 2020 – Q3 – International Taxation

Provide a report on regional economic integration and trade blocs for Larry Limited’s international market entry.

Question

Larry Limited, Lagos, is a manufacturing company that has been producing household utensils successfully for several years. The company is planning to enter the international market but the management team has little or no information in respect of regional economic integration and trade blocs around the world. The Managing Director of the company has just engaged your professional accounting firm to provide advice on some salient issues in this respect.

Required:
As the Desk Officer in charge of international tax matters in the professional accounting firm, you are to present a report to your principal partner, for his review before sending it to the firm‘s client. Your report should cover the following areas:
a. Distinction between regional economic integration and trade blocs. (4 Marks)
b. Objectives of regional integration. (5 Marks)
c. Benefits of regional economic integration and trade blocs. (4 Marks)
d. Disadvantages of regional economic integration and trade blocs. (3 Marks)
e. Common market and economic union as major types of regional economic integration. (4 Marks)

Answer

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Tags: Economic Integration, International trade, Trade Blocs
Level: Level 3

Topic: International taxation

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

Question

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

Answer

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Tags: Double Taxation Agreements, Foreign subsidiary, International Contracts, Nigerian Tax Laws, Permanent Establishment, Tax liabilities, Withholding Tax
Level: Level 3

Topic: International taxation

ATAX – Nov 2018 – L3 – Q3a – International Taxation

Tax implications for Sadiq Corporation's contracts executed by its Nigerian subsidiary, including PE under Nigeria-UK tax agreement.

Question

(a) Sadiq Corporation was incorporated in Sweden as a limited liability company and has a subsidiary, Omologede Ventures Nigeria Limited located in Akure, Nigeria. Peniel Nigeria Plc awarded a contract to Sadiq Corporation to renovate a rice milling factory in Gboko, Benue State, and another in Abakaliki, Ebonyi State. The contract value for the Gboko factory is $11,064,150, and $7,337,616 for the Abakaliki factory. Sadiq Corporation later sub-contracted the two jobs to its subsidiary in Nigeria. The renovation is expected to be completed within six months.

The following information was submitted to the Federal Inland Revenue Service by Omologede Ventures Nigeria Limited for the year ended December 31, 2017:

Description	Amount (N)
Direct materials	962,100,000
Scaffolding	183,538,320
Administrative expenses on hired professionals	33,352,800
Rentals on equipment	18,708,248
Maintenance of equipment	7,431,688
Personnel card (domestic)	28,803,029
Personnel cost (foreign)	14,738,250
Fees to engineers	11,298,689
Other operational costs	6,512,070

Additional Information:

Capital allowance agreed by Omologede Ventures Nigeria Limited with the Federal Inland Revenue Service for the year was N104,418,744.
60% of the total contract sum was made available to Omologede Ventures Nigeria Limited.
Depreciation is N69,902,092.
70% of the total contract sum was paid at the beginning of the job, while the balance was paid in September of the same year.
The exchange rate at the time of signing the contract was N180 to $1. The rate changed in August of the same year to N195 to $1.

Withholding tax provisions were fully complied with by the two companies, and the tax remitted to the relevant tax authority as and when due.

Required:
As the local consultancy firm in Nigeria, provide advice to the management of the two companies on the tax implications of the contracts for the relevant year of assessment, clearly showing their tax liabilities (if any).
(15 Marks)

Answer

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Tags: Double Taxation Agreements, Foreign subsidiary, International Contracts, Nigerian Tax Laws, Permanent Establishment, Tax liabilities, Withholding Tax
Level: Level 3

Topic: International taxation

TAX – Nov 2015 – L2 – Q4a – International Taxation

This question explains the tax treatment of income earned by a non-resident individual who has spent time in Nigeria.

Question

Mr. Alexis Sanchez was employed by Zenon Ltd as Director Commercial, West and Central Africa with effect from 1 March 2011. He entered Nigeria on the date his employment became effective and remained in Nigeria till 25 August 2011. He returned to Nigeria on 15 January 2012, and remained in Nigeria till 31 July 2012.

Required:
Explain the basis for the taxation of income earned by Mr. Alexis Sanchez in Nigeria for the relevant tax years.

Answer

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Tags: Employment Income, Non-resident, Personal Income Tax Act (PITA), Tax residency
Level: Level 2

Topic: International taxation
Series: NOV 2015

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

Question

The management of Smith Plc, a UK-based company, is considering the possibility of launching its presence in Ghana and it is not sure of the tax implication of the following under the tax laws of Ghana:

i) It is considering making its presence through incorporation in Ghana or creating an external company that is a Permanent Establishment (Branch) instead.
ii) It intends to acquire all its non-current assets through finance lease as against buying the assets outright when it makes its presence in Ghana.
iii) It intends to bring some staff from the United Kingdom to work in Ghana who will be paid half salary in Ghana and the other half paid directly to their accounts in the United Kingdom as against paying their full salary in Ghana.
iv) Management intends to acquire shares in many companies in Ghana as part of efforts to create value for shareholders through dividend receipts as against granting loans to interested companies in Ghana if it is unable to make its presence in Ghana.

Required:
Evaluate the above policy interventions and advise on the tax implication of each to enable the management of Smith Plc to make a decision.

Answer

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Tags: Dividends, Finance lease, Incorporation, Non-current Assets, Permanent Establishment, Tax implications
Level: Level 3

Topic: International taxation, Permanent establishment
Series: NOV 2018

AT – Nov 2020 – L3 – Q3c – International taxation

A paper to the Commissioner-General outlining factors to consider in a related party transaction for SuccessVehicles Ltd.

Question

Two vehicles of the same model and brand were sold by SuccessVehicles Ltd to two buyers at different prices. The first buyer bought one of the vehicles at the equivalent of US$84,500 and the second buyer bought the other vehicle at US$91,000. This arrangement, the Tax Authority finds difficult to accept and plans to confront SuccessVehicles Ltd on the matter.

The Commissioner-General has invited you as a final level student of ICAG to advise him on the factors to consider before approaching SuccessVehicles Ltd on the matter, as the Commissioner-General suspects related party issues.

Required:
Write a paper to the Commissioner-General on the issues to consider before approaching SuccessVehicles Ltd on the matter.

Answer

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Tags: Commissioner-General, Comparability factors, Related Party Transactions, Tax authority, Transfer Pricing
Level: Level 3

Topic: International taxation
Series: NOV 2020

AT – Nov 2020 – L3 – Q3b – International taxation

Tax computation for Andrew Soweah as an individual, granting relief under the Ghana/UK Double Taxation Agreement using the credit method.

Question

Andrew Soweah recently relocated to Ghana to commence his business after retirement from TaskForce (UK) Ltd, a security company he served for over 20 years. The nature of the business was to provide private security to diplomats and the very affluent.

Before coming to Ghana, he rented out his apartment in the UK for a yearly rent of £18,000. He also maintained a healthy balance in his account with Diamond Bank in London.

His income for 2019 year of assessment is summarized as follows:

Business Income (net of all taxes): GH¢126,000.
Dividend received from Faithful Ltd, a resident company at gross amount was GH¢18,000.
Rent of £16,200 was paid into his account with Diamond Bank. Withholding tax amounting to £1,800 had been deducted.
Diamond Bank credited his account with net of £8,100 bank interest. UK tax rate on interest is 10%.

Additional Information:

Exchange rate is GH¢7.5 for £1.
Andrew Soweah does not contribute to social security in Ghana.

Required: Compute his tax liability as an individual for the relevant year of assessment while granting him relief for double taxation under the Ghana/UK Double Taxation Agreement using the credit method.

Answer

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Tags: Business income, Double Taxation, Foreign income, Ghana-UK treaty, Individual tax, Rental Income, Tax Relief
Level: Level 3

Topic: International taxation
Series: NOV 2020

AT – Nov 2020 – L3 – Q3a – International taxation

Tax implications of a loan from a parent company and foreign exchange losses for Mandy Ltd, a subsidiary of Menkay Incorporated.

Question

The following information is relevant to Mandy Ltd (Ghana), a subsidiary of Menkay Incorporated, a company resident in Japan.

Following Mandy Ltd’s operational challenges, a loan of US$1,500,000 was secured from its parent company in 2019 year of assessment.

Additional information relevant to Mandy Ltd’s operations:

Description	Amount (GH¢)
Interest on loan paid in 2019	300,000
Foreign exchange loss	105,000
Equity:
Share capital	150,000
Retained earnings	300,000
Total equity	450,000

Exchange rate: 1US$ = GH¢5.73

Required:
Determine the tax implication of the above transaction.

Answer

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Tags: Debt-equity ratio, Foreign Exchange Loss, Interest expense, Tax implications, Thin Capitalization
Level: Level 3

Topic: International taxation
Series: NOV 2020

AT – Mar 2024 – L3 – Q3b – International taxation

Explaining the difference between economic and juridical double taxation.

Question

The Organisation for Economic Co-operation and Development (OECD) describes two kinds of double taxation agreements: economic and juridical.

Required:
Explain economic and juridical double taxation.

Answer

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Level: Level 3

Topic: International taxation
Series: MAR 2024

AT – Mar 2024 – L3 – Q2a – International taxation

Discussing the tax implications of cross-border profit and transfer payments for non-resident companies.

Question

Trolex Ltd was incorporated in the United Kingdom. It manufactures watches for sale only in the Asian Markets. The company is a success story from its commercial enterprise in its production of “wonder watches.”

Vielo Ltd, a locally incorporated company with 4 shareholders, scanned the environment with the bid to start a business that would make it successful. The management of Vielo Ltd heard of the “wonder watches” sold by Trolex Ltd. Consequently, the management of Vielo Ltd placed an order for 10 million watches from Trolex Ltd. From the analysis, Trolex Ltd would make £600,000 from this transaction as profit. The sales value to be transferred to Trolex Ltd by Vielo Ltd amounts to £900 million.

The management of Vielo Ltd has written to the Kaneshie Office of the Ghana Revenue Authority on the tax implication of the payment.

Required:
Advise the Commissioner-General through the office manager on the tax implication of the profit and the transfer payment.

Answer

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Tags: Cross-border taxation, Profit repatriation, Trading in Ghana, Trading with Ghana
Level: Level 3

Topic: International taxation
Series: MAR 2024

AT – Mar 2024 – L3 – Q1b – International taxation

Discussing the challenges posed by double taxation agreements and the methods of granting double taxation relief.

Question

There is growing attention on the question of tax treaties signed by developing countries. The costs of tax treaties to developing countries have been highlighted in recent years by NGOs such as ActionAid and SOMO (Lewis, 2013). During 2014, an influential IMF paper warned that developing countries “would be well-advised to sign treaties only with considerable caution” (IMF, Spillovers on International Corporate Taxation, 2014) and the OECD, as part of its Base Erosion and Profit Shifting (BEPS) project, proposes to add text to the commentary of its model treaty to help countries decide “whether a treaty should be concluded with a State but also whether a State should seek to modify or replace an existing treaty or even, as a last resort, terminate a treaty” (OECD, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, 2014).

Required:

i) Examine the challenges double taxation agreements pose to Ghana.
(4 marks)

ii) Explain the methods of granting double taxation reliefs.
(4 marks)

Answer

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Tags: Double Taxation, Tax Compliance, Tax Relief, Tax treaties
Level: Level 3

Topic: International taxation
Series: MAR 2024

AT – Dec 2023 – L3 – Q1 – International taxation

Calculating tax adjustments for related party transactions between Abirem Ltd and Gomoa Ltd, including pricing and dividend issues.

Question

Gomoa Ltd, a resident of the United States of America, established two companies, Komenda Ltd (resident in South Africa) and Abirem Ltd (resident in Ghana). The Ghana Revenue Authority (GRA) requested information about Abirem Ltd for tax purposes.

The details for the 2021 year of assessment are as follows:

Additional information:
i) Gomoa Ltd invoiced goods to Abirem Ltd at a price of GH¢1,900,000, which is 10% higher than the market price.
ii) Dividend of GH¢700,000 paid by Abirem Ltd to Gomoa Ltd has been incorporated into Abirem Ltd’s cost.
iii) Management and technical services fee of GH¢1,290,000 paid to the group by Abirem Ltd has been added to operating expenses.
iv) Goods invoiced to Komenda Ltd by Gomoa Ltd amounted to GH¢1,000,000, priced 15% below the arm’s length price.
v) Dividend of GH¢200,000 received by Abirem Ltd from a resident company is included in its revenue. Abirem Ltd holds 25% of the resident company’s voting power.
vi) The Managing Director of Abirem Ltd took goods for personal use, valued at GH¢200,000 (cost), with a margin of 20%.
vii) The Managing Director of Abirem Ltd took additional goods worth GH¢130,000 at cost for home consumption, which was not added to the cost of goods above. The goods were sold at a 10% markup.
viii) Abirem Ltd paid GH¢20,000 in tax in South Africa at a rate of 27% on goods sold, which was included in its revenue.
ix) Abirem Ltd received a loan from Komenda Ltd for operations. Loan details are as follows:

Loan amount: GH¢10 million
Interest on loan payable: GH¢1,000,000
Foreign exchange loss on the loan: GH¢200,000
x) Equity at the start of the year: GH¢2,000,000, and at the end of the year: GH¢2,800,000
xi) GH¢400,000 was transferred from retained earnings to share capital.
xii) Financial gain from derivative: GH¢2.5 million, and financial cost from derivative: GH¢6 million, included in operating expenses.

Required:
Calculate the tax payable by Abirem Ltd for the 2021 year of assessment.

Answer

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Tags: International Taxation, Related Party Transactions, Tax adjustments, Thin Capitalization, Transfer Pricing
Level: Level 3

Topic: International taxation
Series: DEC 2023

AT – July 2023 – L3 – Q1b – International taxation

Calculating the tax payable for a resident company with cross-border income from Ghana and Nigeria.

Question

Libir Ltd is a resident company incorporated in Ghana. Its trading partners have been customers and suppliers from Ghana and also from Nigeria. The company supplies animal feed.

Its operation for 2021 year of assessment is as follows:
Income from Ghana: GH¢10,000,000
Income from Nigeria: ₦1,000,000,000

Additional information:

Allowable expense granted by the Ghana Revenue Authority is GH¢6,000,000.
The allowable expense in 1 does not include capital allowance of GH¢1,200,000 which was legitimately claimable by the company.
The tax paid in Nigeria amounted to ₦40,000,000. The withholding taxes paid in Ghana with evidence of tax credit certificates amounted to GH¢1,000,000.
The taxpayer has written to the Commissioner-General to relinquish its right under the double taxation arrangement.
Exchange rate is GH¢1 = ₦60.

Required:
Compute the tax payable.

Answer

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Tags: Allowable expense, Cross-border income, Double Taxation, Tax computation
Level: Level 3

Topic: International taxation
Series: JULY 2023

AT – July 2023 – L3 – Q1a – International taxation

Analyzing the tax implications of share capital, loan interest, revaluation reserves, and thin capitalization

Question

On 1 January 2022, Frost Ltd based in the United States of America acquired 100% shares in Nzungu Ltd in the Gambia. Also, Nzungu Ltd acquired 60% shares in Gyakye Ltd in Ghana.

Frost Ltd granted a loan equivalent of GH¢100 million to Nzungu Ltd. The loan was subsequently passed on to Gyakye Ltd in Ghana to strengthen its capital structure.

The interest equivalent on the loan from Frost Ltd to Nzungu Ltd was GH¢6,000,000. Gyakye Ltd ended up paying GH¢8,000,000 as interest to Nzungu Ltd. The difference in interest payment was a service charge for the role played in transferring the loan to Ghana by Nzunga.

Gyakye Ltd has the following extracts from its Statement of Financial Position as at 2022:

Required:
Evaluate the tax implications of the following:

The movement in the Share Capital.
The loan interest paid.
The movement in the retained earnings.
The movement in the revaluation reserves.
Thin capitalization implications from the above.

Answer

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Tags: Capital structure, Interest, International Taxation, Loan, Thin Capitalization
Level: Level 3

Topic: International taxation
Series: JULY 2023

AT – Nov 2015 – L3 – Q3a – International taxation

Explanation of public sector debt and objectives of public debt management.

Question

It is the opinion of some people that borrowing by government may be a better option in some cases than the imposition of taxes as taxes have the potential of creating resentment and upheavals during a period of economic difficulties.

i. Explain fully what Public Sector Debt is.
(5 marks)

ii. What are the objectives of Public Debt Management?

(4 marks)

Answer

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Tags: Debt Management, Government Borrowing, International finance, Public Debt, Public Sector
Level: Level 3