Question Tag: Double Taxation

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  • 15 Marks

ATAX – May 2022 – L3 – Q6 – Taxation of Non-Resident Companies and Individuals

Discuss the tax implications of an overseas branch and compute the associated tax liabilities.

Maigona Agro Limited is a Nigerian company operating in the agricultural sector. It has a large expanse of land in the Northern part of the country, which is used strictly for the cultivation of cotton seeds. As a result of the collapse of the textile/garment industry, specifically due to the unfavourable business climate in Nigeria, the company in 2015 established a branch, BAM Textile Mills, in the United Kingdom. Part of the cotton produced locally is sold to BAM Textile Mills at a competitive price, for the production of finished product (branded textile clothing).

A tax dispute recently arose between the Management of Maigona Agro Limited and officials of the Federal Inland Revenue Service (FIRS) on the correct assessment of profits made by BAM Textile Mills. The Managing Director is of the opinion that the tax paid by BAM Textile Mills in the United Kingdom should be the final tax since the company is only an overseas branch. He further averred that the provisions of the Companies and Allied Matters Act 2020 (as amended) are only applicable to companies incorporated in Nigeria. The Managing Director was furious when the company received a reminder of notice of assessment from the FIRS and has therefore threatened to approach the Tax Appeal Tribunal for redress.

You have been engaged by the company as its Tax Consultant to provide professional advice on the tax implication of the profit made by BAM Textile Mills, UK and possibly representation at the Tax Appeal Tribunal sittings. The statement of profit or loss for the year ended October 31, 2021 (BAM Textile Mills’ result has been converted to Nigerian Naira at the prevailing exchange rate) and other relevant documents were handed over to you by the Managing Director.

The extracts from the statements of profit or loss of the two corporate entities revealed the following:

Maigona Agro Ltd (N’000) BAM Textile Mills (N’000) Total (N’000)
Gross Turnover 975,100 1,820,500 2,795,600
Less:
Cost of materials/inputs 350,200 672,000 1,022,200
Salaries and Wages 122,530 400,400 522,930
Administrative Expenses 45,700 110,900 156,600
Depreciation 75,600 147,300 222,900
Donation 8,500 0 8,500
Share of Head Office Expenses 33,300 50,000 83,300
Income Tax Paid in the UK 0 72,200 72,200
Total Expenses 635,830 1,452,800 2,088,630
Net Profit 339,270 367,700 706,970

Additional Information:

  1. The capital allowances of Maigona Agro Limited in respect of plant and equipment, farming tools, and other qualifying capital expenditure as agreed with the tax authorities was N45,000,000. The amount of capital allowances of N57,000,000 claimable by BAM Textile Mills on qualifying assets was also certified by the tax authorities.
  2. Included in the donation was N5,000,000 given to victims of the COVID-19 (Omicron variant) pandemic in Nigeria.
  3. The UK tax rate is assumed to be 35%.

Required:

a. Advise the management of Maigona Agro Limited on the tax implications of the overseas branch. (4 Marks)
b. Compute the tax liabilities of the company in line with your submission in (a) above. (11 Marks)

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  • 30 Marks

ATAX – Nov 2016 – L3 – Q1 – Taxation of Companies

Discusses tax planning concepts, anti-avoidance measures, tax evasion, double taxation, and non-tax factors influencing investor choices.

Zezee Nigeria Limited was incorporated on September 7, 2012, but did not commence business until July 1, 2013. Based on its Memorandum and Articles of Association, the company was established to carry on distributorship and general contracting.

Extracts from Statements of Profit or Loss and Other Comprehensive Income:

Additional information:

(i) Other Income comprises:

(ii) Administrative expenses include:

(iii) Details of Property, Plant and Equipment are as follows:

(iv) On January 2, 2015, the company bought another Motor
vehicle for N1,800,000

(v) Extracts of the Statements of Financial Position are given below:

You were recently appointed the Tax Consultant to the company. The directors sought your advice on whether or not to exercise the company’s right of election for the relevant years of assessment.
For all the relevant years of assessment, you are required to:
a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

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  • 4 Marks

AT – May 2018 – L3 – SC – Q5a – Tax Administration and Dispute Resolution

Advisory on the limits of the Petroleum Profits Tax Act regarding information disclosure to foreign entities and Auditor-General duties.

Section 5 of the Petroleum Profits Tax Act Cap P.13 LFN 2004, specifies that:

“Every person having possession of or control over any documents, information, returns or assessment, lists or copies of such lists relating to tax or petroleum operations or the amount and value of chargeable oil won by any company who at any time communicates or attempts to communicate such information or anything contained in such documents, returns, lists, or copies to any person, shall be guilty of an offense.”

Required:

Advise on the extent to which the provision of the Act can be relied upon on issues relating to:

  1. Disclosure of information to authorised officers of foreign countries who have a double taxation agreement with Nigeria.
    (2 Marks)
  2. The performance of the duties of the Auditor-General for the Federation or any officer authorised by him.
    (2 Marks)

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  • 20 Marks

AT – Nov 2023 – L1 – SB – Q4 – Double Taxation Reliefs and Credits

Explanation of the Nigerian-UK Double Taxation Agreement provisions, exempted foreign incomes, conflict resolution mechanisms, and tax treaty benefits.

A notable State‟s Chamber of Commerce and Industries has invited you and three
other tax consultants to their quarterly interactive forum, tagged “The Nigerian
Double Taxation Agreement with the UK.” The participants are top private sector
based industrialists who will be visiting the United Kingdom on a trade mission
next week.

Required:

As the lead discussant, you are to prepare a paper explaining the provisions of the Nigerian double taxation agreements with the United Kingdom in respect of:

i. Income arising from immovable properties (2 Marks)
ii. Business profits not arising through a permanent establishment (2 Marks)
iii. Profits or gains arising from the operations of ships and aircraft in international traffic (2 Marks)
iv. Dividends derived by a company resident in one country from a company resident in another country (2 Marks)
v. Interest arising in one country and paid to a resident of the other country (2 Marks)

b. State THREE foreign incomes exempted from Nigerian tax. (3 Marks)

c. Discuss THREE widely recognised resolution mechanisms being used by the Nigerian government to mitigate the effect of the conflicts between double taxation agreements and Nigerian tax laws. (3 Marks)

d. Explain FOUR benefits of double taxation agreements. (4 Marks)

(Total: 20 Marks)

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  • 20 Marks

AT – Nov 2017 – L3 – Q3 – Double Taxation Reliefs and Credits

Outline objectives of the MOU with oil companies and compute double tax credit for Salim Consultants.

a. Outline FIVE objectives of the Memorandum of Understanding which the Federal Government of Nigeria entered into with the Oil Producing Companies on January 1, 1986.

b. SALIM CONSULTANTS LIMITED, incorporated in 2012, is a corporate advisory firm in Nigeria. In 2015, it expanded to Burundi to explore business opportunities there. The directors are interested in the Double Taxation Agreement but have not benefited from it before.

Below is a summary of the Income Statements for the year ended December 31, 2016:

Description Nigeria (N) Burundi (N) Total (N)
Gross Advisory fees 57,000,000 21,750,000 78,750,000
Other Income 960,000 1,800,000 2,760,000
Total 57,960,000 23,550,000 81,510,000
Deduct Expenses:
Deal Execution Expenses (30,225,000) (9,750,000) (39,975,000)
Office Rent (1,800,000) (675,000) (2,475,000)
Depreciation (5,100,000) (2,700,000) (7,800,000)
Loss on sale of Non-Current Assets – (525,000) (525,000)
Foreign Exchange Loss Provision (960,000) – (960,000)
Other Operating Expenses (3,240,000) (1,380,000) (4,620,000)
Net Operating Profit 16,635,000 8,520,000 25,155,000

Additional information:
(i) N2,130,000 was paid to the Burundi Tax Authority after claiming N4,800,000 Capital Allowance. Capital Allowance claimable in Nigeria was N7,800,000.
(ii) Other income of N960,000 is profit from the sale of Non-Current Assets, while N1,800,000 is gains from the disposal of securities.

Required:
a. Explain briefly what is meant by Double Taxation Relief.
b. Compute the Double Tax Credit claimable by the Company assuming there is a Double Taxation Agreement with Burundi.

 

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  • 5 Marks

TF – May 2018 – L3 – Q3c – Business income – Corporate income tax

Discuss five benefits of the Double Taxation Agreement between Ghana and Mauritius.

The Government of Ghana recently signed a Double Taxation Avoidance agreement (DTA) with the government of Mauritius at Port Louis, Mauritius.

Speaking at a joint press conference after the signing ceremony, Ghana’s Vice President, Alhaji Dr. Bawumia, said:
“We have seen the manifestation of the first fruits of this Joint Permanent Commission with the signing of the historic double taxation agreement between Ghana and Mauritius, …, and we believe this is just the beginning of our cooperation.”

Required:
Discuss FIVE benefits likely to result from the Double Taxation Agreement.
(5 marks)

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  • 10 Marks

AT – Aug 2022 – L3 – Q2a – International taxation

Discuss whether bilateral double taxation conventions are essential for resolving international tax problems.

Despite the growing number of contributions to bilateral double taxation, some tax analysts have questioned whether bilateral double taxation conventions relating to the taxation of income and capital are essential for the resolution of international tax problems.

Required:
Discuss the above statement.
(10 marks)

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  • 20 Marks

AT – May 2020 – L3 – Q1 – International taxation

Explanation of the concept of permanent establishment in Ghana and the differences between economic and juridical double taxation.

The spectrum of investment opportunities in Ghana has heightened and this has attracted some investors who intend to visit next month to assess the potential for investment. The Ministry of Finance has written to your Tax Consulting Firm to make a presentation on behalf of the Ministry to these Investors. The letter from the Ministry contains in part the following:

“International trade has given persons the ability to carry out separate aspects of their business operations in different countries. Even though it will be inconceivable to compel a person to pay taxes in every country where that person carries out business operations, the level of business activity carried on by a person in a particular country may expose that person to tax liabilities under the laws of that country. In Ghana, assessable income of a non-resident person includes income effectively connected with a Ghanaian permanent establishment of the person irrespective of the source of the income…”

Required: Prepare a report highlighting the following:

a) What constitutes a Ghanaian permanent establishment with reference to the Income Tax Act, 2015 (Act 896)?
(4 marks)

b) Explain the taxation rules on Ghanaian permanent establishment as enshrined in the Income Tax Act, 2015 (Act 896).
(10 marks)

c) There are economic double taxation and juridical double taxation. Explain these TWO (2) concepts of double taxation.
(6 marks)

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  • 8 Marks

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.

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.

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  • 10 Marks

AT – Nov 2020 – L3 – Q2a – Tax planning

A presentation on five objectives of international taxation treaties.

You are a partner in a Tax Consulting firm. Your firm has recently employed 5 new staff and they have to be trained on a number of issues.

Required:
Prepare a presentation on international taxation with emphasis on FIVE (5) objectives or goals of international taxation treaties.

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  • 15 Marks

ATAX – May 2022 – L3 – Q6 – Taxation of Non-Resident Companies and Individuals

Discuss the tax implications of an overseas branch and compute the associated tax liabilities.

Maigona Agro Limited is a Nigerian company operating in the agricultural sector. It has a large expanse of land in the Northern part of the country, which is used strictly for the cultivation of cotton seeds. As a result of the collapse of the textile/garment industry, specifically due to the unfavourable business climate in Nigeria, the company in 2015 established a branch, BAM Textile Mills, in the United Kingdom. Part of the cotton produced locally is sold to BAM Textile Mills at a competitive price, for the production of finished product (branded textile clothing).

A tax dispute recently arose between the Management of Maigona Agro Limited and officials of the Federal Inland Revenue Service (FIRS) on the correct assessment of profits made by BAM Textile Mills. The Managing Director is of the opinion that the tax paid by BAM Textile Mills in the United Kingdom should be the final tax since the company is only an overseas branch. He further averred that the provisions of the Companies and Allied Matters Act 2020 (as amended) are only applicable to companies incorporated in Nigeria. The Managing Director was furious when the company received a reminder of notice of assessment from the FIRS and has therefore threatened to approach the Tax Appeal Tribunal for redress.

You have been engaged by the company as its Tax Consultant to provide professional advice on the tax implication of the profit made by BAM Textile Mills, UK and possibly representation at the Tax Appeal Tribunal sittings. The statement of profit or loss for the year ended October 31, 2021 (BAM Textile Mills’ result has been converted to Nigerian Naira at the prevailing exchange rate) and other relevant documents were handed over to you by the Managing Director.

The extracts from the statements of profit or loss of the two corporate entities revealed the following:

Maigona Agro Ltd (N’000) BAM Textile Mills (N’000) Total (N’000)
Gross Turnover 975,100 1,820,500 2,795,600
Less:
Cost of materials/inputs 350,200 672,000 1,022,200
Salaries and Wages 122,530 400,400 522,930
Administrative Expenses 45,700 110,900 156,600
Depreciation 75,600 147,300 222,900
Donation 8,500 0 8,500
Share of Head Office Expenses 33,300 50,000 83,300
Income Tax Paid in the UK 0 72,200 72,200
Total Expenses 635,830 1,452,800 2,088,630
Net Profit 339,270 367,700 706,970

Additional Information:

  1. The capital allowances of Maigona Agro Limited in respect of plant and equipment, farming tools, and other qualifying capital expenditure as agreed with the tax authorities was N45,000,000. The amount of capital allowances of N57,000,000 claimable by BAM Textile Mills on qualifying assets was also certified by the tax authorities.
  2. Included in the donation was N5,000,000 given to victims of the COVID-19 (Omicron variant) pandemic in Nigeria.
  3. The UK tax rate is assumed to be 35%.

Required:

a. Advise the management of Maigona Agro Limited on the tax implications of the overseas branch. (4 Marks)
b. Compute the tax liabilities of the company in line with your submission in (a) above. (11 Marks)

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  • 30 Marks

ATAX – Nov 2016 – L3 – Q1 – Taxation of Companies

Discusses tax planning concepts, anti-avoidance measures, tax evasion, double taxation, and non-tax factors influencing investor choices.

Zezee Nigeria Limited was incorporated on September 7, 2012, but did not commence business until July 1, 2013. Based on its Memorandum and Articles of Association, the company was established to carry on distributorship and general contracting.

Extracts from Statements of Profit or Loss and Other Comprehensive Income:

Additional information:

(i) Other Income comprises:

(ii) Administrative expenses include:

(iii) Details of Property, Plant and Equipment are as follows:

(iv) On January 2, 2015, the company bought another Motor
vehicle for N1,800,000

(v) Extracts of the Statements of Financial Position are given below:

You were recently appointed the Tax Consultant to the company. The directors sought your advice on whether or not to exercise the company’s right of election for the relevant years of assessment.
For all the relevant years of assessment, you are required to:
a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

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  • 4 Marks

AT – May 2018 – L3 – SC – Q5a – Tax Administration and Dispute Resolution

Advisory on the limits of the Petroleum Profits Tax Act regarding information disclosure to foreign entities and Auditor-General duties.

Section 5 of the Petroleum Profits Tax Act Cap P.13 LFN 2004, specifies that:

“Every person having possession of or control over any documents, information, returns or assessment, lists or copies of such lists relating to tax or petroleum operations or the amount and value of chargeable oil won by any company who at any time communicates or attempts to communicate such information or anything contained in such documents, returns, lists, or copies to any person, shall be guilty of an offense.”

Required:

Advise on the extent to which the provision of the Act can be relied upon on issues relating to:

  1. Disclosure of information to authorised officers of foreign countries who have a double taxation agreement with Nigeria.
    (2 Marks)
  2. The performance of the duties of the Auditor-General for the Federation or any officer authorised by him.
    (2 Marks)

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  • 20 Marks

AT – Nov 2023 – L1 – SB – Q4 – Double Taxation Reliefs and Credits

Explanation of the Nigerian-UK Double Taxation Agreement provisions, exempted foreign incomes, conflict resolution mechanisms, and tax treaty benefits.

A notable State‟s Chamber of Commerce and Industries has invited you and three
other tax consultants to their quarterly interactive forum, tagged “The Nigerian
Double Taxation Agreement with the UK.” The participants are top private sector
based industrialists who will be visiting the United Kingdom on a trade mission
next week.

Required:

As the lead discussant, you are to prepare a paper explaining the provisions of the Nigerian double taxation agreements with the United Kingdom in respect of:

i. Income arising from immovable properties (2 Marks)
ii. Business profits not arising through a permanent establishment (2 Marks)
iii. Profits or gains arising from the operations of ships and aircraft in international traffic (2 Marks)
iv. Dividends derived by a company resident in one country from a company resident in another country (2 Marks)
v. Interest arising in one country and paid to a resident of the other country (2 Marks)

b. State THREE foreign incomes exempted from Nigerian tax. (3 Marks)

c. Discuss THREE widely recognised resolution mechanisms being used by the Nigerian government to mitigate the effect of the conflicts between double taxation agreements and Nigerian tax laws. (3 Marks)

d. Explain FOUR benefits of double taxation agreements. (4 Marks)

(Total: 20 Marks)

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  • 20 Marks

AT – Nov 2017 – L3 – Q3 – Double Taxation Reliefs and Credits

Outline objectives of the MOU with oil companies and compute double tax credit for Salim Consultants.

a. Outline FIVE objectives of the Memorandum of Understanding which the Federal Government of Nigeria entered into with the Oil Producing Companies on January 1, 1986.

b. SALIM CONSULTANTS LIMITED, incorporated in 2012, is a corporate advisory firm in Nigeria. In 2015, it expanded to Burundi to explore business opportunities there. The directors are interested in the Double Taxation Agreement but have not benefited from it before.

Below is a summary of the Income Statements for the year ended December 31, 2016:

Description Nigeria (N) Burundi (N) Total (N)
Gross Advisory fees 57,000,000 21,750,000 78,750,000
Other Income 960,000 1,800,000 2,760,000
Total 57,960,000 23,550,000 81,510,000
Deduct Expenses:
Deal Execution Expenses (30,225,000) (9,750,000) (39,975,000)
Office Rent (1,800,000) (675,000) (2,475,000)
Depreciation (5,100,000) (2,700,000) (7,800,000)
Loss on sale of Non-Current Assets – (525,000) (525,000)
Foreign Exchange Loss Provision (960,000) – (960,000)
Other Operating Expenses (3,240,000) (1,380,000) (4,620,000)
Net Operating Profit 16,635,000 8,520,000 25,155,000

Additional information:
(i) N2,130,000 was paid to the Burundi Tax Authority after claiming N4,800,000 Capital Allowance. Capital Allowance claimable in Nigeria was N7,800,000.
(ii) Other income of N960,000 is profit from the sale of Non-Current Assets, while N1,800,000 is gains from the disposal of securities.

Required:
a. Explain briefly what is meant by Double Taxation Relief.
b. Compute the Double Tax Credit claimable by the Company assuming there is a Double Taxation Agreement with Burundi.

 

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  • 5 Marks

TF – May 2018 – L3 – Q3c – Business income – Corporate income tax

Discuss five benefits of the Double Taxation Agreement between Ghana and Mauritius.

The Government of Ghana recently signed a Double Taxation Avoidance agreement (DTA) with the government of Mauritius at Port Louis, Mauritius.

Speaking at a joint press conference after the signing ceremony, Ghana’s Vice President, Alhaji Dr. Bawumia, said:
“We have seen the manifestation of the first fruits of this Joint Permanent Commission with the signing of the historic double taxation agreement between Ghana and Mauritius, …, and we believe this is just the beginning of our cooperation.”

Required:
Discuss FIVE benefits likely to result from the Double Taxation Agreement.
(5 marks)

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  • 10 Marks

AT – Aug 2022 – L3 – Q2a – International taxation

Discuss whether bilateral double taxation conventions are essential for resolving international tax problems.

Despite the growing number of contributions to bilateral double taxation, some tax analysts have questioned whether bilateral double taxation conventions relating to the taxation of income and capital are essential for the resolution of international tax problems.

Required:
Discuss the above statement.
(10 marks)

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  • 20 Marks

AT – May 2020 – L3 – Q1 – International taxation

Explanation of the concept of permanent establishment in Ghana and the differences between economic and juridical double taxation.

The spectrum of investment opportunities in Ghana has heightened and this has attracted some investors who intend to visit next month to assess the potential for investment. The Ministry of Finance has written to your Tax Consulting Firm to make a presentation on behalf of the Ministry to these Investors. The letter from the Ministry contains in part the following:

“International trade has given persons the ability to carry out separate aspects of their business operations in different countries. Even though it will be inconceivable to compel a person to pay taxes in every country where that person carries out business operations, the level of business activity carried on by a person in a particular country may expose that person to tax liabilities under the laws of that country. In Ghana, assessable income of a non-resident person includes income effectively connected with a Ghanaian permanent establishment of the person irrespective of the source of the income…”

Required: Prepare a report highlighting the following:

a) What constitutes a Ghanaian permanent establishment with reference to the Income Tax Act, 2015 (Act 896)?
(4 marks)

b) Explain the taxation rules on Ghanaian permanent establishment as enshrined in the Income Tax Act, 2015 (Act 896).
(10 marks)

c) There are economic double taxation and juridical double taxation. Explain these TWO (2) concepts of double taxation.
(6 marks)

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  • 8 Marks

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.

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.

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  • 10 Marks

AT – Nov 2020 – L3 – Q2a – Tax planning

A presentation on five objectives of international taxation treaties.

You are a partner in a Tax Consulting firm. Your firm has recently employed 5 new staff and they have to be trained on a number of issues.

Required:
Prepare a presentation on international taxation with emphasis on FIVE (5) objectives or goals of international taxation treaties.

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