- 20 Marks
ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals
Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.
Question
“The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction.”
Background:
Gen Power Incorporated, an international power plant company based in New York, USA, has subsidiary outlets in many parts of the world, including Kem Limited in Lagos, Nigeria. In 2018, Gen Power Incorporated was awarded a contract for US $3 million by the Nigerian government to construct a power plant. The project was executed by Kem Limited, and the following expenses were incurred:
| Expense Description | Amount (₦’000) |
|---|---|
| Materials and other direct inputs | 320,800 |
| Hire of special equipment | 31,500 |
| Foreign experts cost and emoluments | 65,300 |
| Personnel costs | 110,400 |
| Administrative expenses | 52,000 |
| Depreciation of assets | 60,700 |
| Repairs and maintenance | 7,200 |
| Fuel and oil | 8,200 |
| Miscellaneous expenses | 27,100 |
Other Relevant Information:
- The exchange rate is ₦362 to US $1.
- A similar special equipment could be hired for ₦25 million.
- Administrative expenses include ₦12 million transferred to revenue reserve.
- Breakdown of repairs and maintenance:
| Repairs and Maintenance Breakdown | Amount (₦’000) |
|---|---|
| Maintenance of vehicles | 2,000 |
| Improvement to the office building | 1,700 |
| Repairs of equipment | 2,100 |
| Renewals of tools and implements | 1,400 |
| Total | 7,200 |
- Miscellaneous expenses include ₦4 million as loss on exchange for imported materials.
- Capital allowances agreed with the tax authorities: ₦57 million.
Required:
a. Describe FIVE circumstances under which a non-resident company will be assessable to tax in Nigeria. (5 Marks)
b. Compute the tax liabilities of Gen Power Incorporated for the relevant year of assessment. (15 Marks)
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