Past Questions & Answers
- 8 Marks
ATAX – May 2016 – L3 – Q7b – Taxation of Non-Resident Companies and Individuals
Compute the tax liabilities payable in Nigeria for Apex Communications Limited, a foreign company with income originating, routed, and terminating in Nigeria.
Question
Apex Communications Limited is a British company engaged in the business of transmission of messages by cable or any other form of wireless technology.
Its worldwide operating results for the year ended December 31, 2014, are as follows:
You are provided with the following information:
(i) The British Tax Authority has certified the Adjusted Profit and Depreciation allowance ratios.
(ii) Included in Overhead Expenses are disallowable items totaling ₦12,500,000.
(iii) The Federal Inland Revenue Service is satisfied that tax is computed and assessed in Britain, the home country of the foreign company, on the same basis as Nigeria.
You are required to:
Compute the Tax Liabilities payable by the company in Nigeria for the relevant assessment year. (8 marks)
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- 7 Marks
ATAX – May 2016 – L3 – Q7a – Tax Planning and Management
List seven essential documents/information required for effective tax planning strategies.
Question
Tax planning involves making conscious efforts to arrange a taxpayer’s affairs in ways that will minimize tax liabilities. It requires detailed knowledge of tax legislation and the application of the same to particular circumstances, identifying and taking advantage of loopholes, if any.
The tax-conscious taxpayer and the expert tax adviser working together can often significantly reduce the tax liability that would have otherwise been payable.
You are required to:
Provide an adequate checklist of any SEVEN documents/information to be considered for effective tax planning strategies. (7 marks)
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- Tags: Tax Documentation, Tax Planning, Tax Strategies
- Level: Level 3
- Topic: Tax Planning and Management
- 15 Marks
AT – May 2016 – L3 – Q6 – Tax Audits and Investigations
Define tax avoidance and evasion, outline the differences, and explain key stages and objectives of a tax audit.
Question
YASSAR LIMITED imports baby wears and has been in business for some years now. The company is doing very well, and the Directors are impressed with the growth. The company’s Managing Director, Chief Agbaegonkiti, is a member of Enugu Sports Club. On January 14, 2015, after the morning aerobics in the club’s gym, a friend of Chief Agbaegonkiti, who is also the Finance Director of a trading outfit, narrated how the company he works for was subjected to a Tax Audit by the Federal Inland Revenue Service (FIRS), which resulted in payment of additional tax liabilities totaling N10.5 million.
The Finance Director attributed their company’s ordeal to the Board’s poor understanding of key tax-related issues. Chief Agbaegonkiti, after listening to his friend, was highly worried about such a fate befalling his company. As a proactive move, he enquired for seasoned tax practitioners, and your firm, Cutting-Edge & Co, Chartered Accountants, was referred to him.
As the Managing Partner, you are to take action and address the following:
REQUIRED:
a. Briefly explain what you understand by the terms Tax Avoidance and Tax Evasion. (2 marks)
b. State FIVE differences between Tax Avoidance and Tax Evasion. (5 marks)
c. Outline the key stages in the Tax Audit process. (3 marks)
d. State SIX objectives of a Tax Audit exercise. (5 marks)
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- 15 Marks
ATAX – May 2016 – L3 – Q5 – Taxation of Companies
Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.
Question
Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.
The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:
- Printing and Stationery N168,750
- Donations and Subscription N1,320,620
- Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.
REQUIRED:
i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)
ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)
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- Tags: Adjusted Profits, Depreciation, Donations, Tax liabilities, Withholding Tax
- Level: Level 3
- Topic: Taxation of Companies
- 16 Marks
ATAX – May 2016 – L3 – Q4b – Capital Gains Tax (CGT)
Analyse the transactions and determine the chargeable gains, provide an opinion on the transactions, and explain the role of the Federal Inland Revenue Service in handling bad debt.
Question
Your Tax Manager has just sent a memo in which you were asked to analyse the situation in a client’s file with the sole aim of determining the Chargeable Gains:
Contents of Memo:
- Dr. Alexander Bold purchased a Duplex in Parkview Estate at a cost of N80 million on January 2009. It was used as a private residence. Another property was purchased in Banana Island in the year 2012, and Dr. Bold transferred the Parkview Estate Property to his wife as a birthday present on August 12, 2013. The market value of the property was N140 million. As a result of incessant flooding in Parkview Estate, the property was finally disposed of for N200 million on January 31, 2014 by the wife.
- An option on a piece of land in Magodo, Lagos State, was sold by Dr. Bold for a sum of N120 million to Mr. Robert on July 1, 2010. Mr. Robert exercised the right to purchase the land for N150 million in 2013 and sold the property for N400 million in 2014.
- Mr. Clyde, a friend of Dr. Bold, purchased a piece of property belonging to Bold and Wife Limited in Badagry at a cost of N240 million. The two parties agreed on installment payments starting with an installment of N80 million on July 1, 2010, and the balance of N80 million every 6 months thereafter. The last installment could not be settled on time because of Mr. Clyde’s illness, who managed to pay N20 million on January 1, 2013. The cost of the property to Bold and Wife Limited was N180 million.
| Instalment Date | Amount Paid (₦) |
|---|---|
| July 1, 2010 | 80,000,000 |
| January 1, 2011 | 80,000,000 |
| July 2, 2011 | 40,000,000 |
| January 1, 2013 | 20,000,000 |
Mr. Clyde eventually died on March 5, 2013, hence the balance of N20 million could not be recovered and this was written off as Bad Debt with the consent of the Federal Inland Revenue Service.
- Mr. Saxon (S.A.N), a Legal Practitioner from the Chambers of Saxon in Lagos, was involved in a case on behalf of Dr. Bold’s wife. The case lasted for about 4 years and judgment was received in favor of the client. The fees were settled partly by cash and partly with an acre of land belonging to Mrs. Bold at Lekki Phase Two in Lagos. Although the debt was N85 million, the property was valued at N60 million. Mr. Saxon eventually sold the property for N220 million.
Required:
i. Chargeable gains (5 marks)
ii. Opinion on all the above transactions (9 marks)
iii. The role of Federal Inland Revenue Service on the issue of Bad Debt on payment by Mr. Clyde (2 marks)
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- Tags: Chargeable Gains, Property Transactions, Tax Analysis
- Level: Level 3
- Topic: Capital Gains Tax (CGT)