- 12 Marks
AT – March 2023 – L3 – Q1a – International taxation
Explain the benefits of converting an external company into a limited liability company, compute tax payable, and discuss tax implications of conversion.
Question
Thunder Ltd resident in the USA has established an external company in Ghana as Thunder Ghana Ltd (Branch).
The following relates to the activities of Thunder Ghana Ltd (Branch) for 2021 year of assessment.
| Description | GH¢ |
|---|---|
| Sales | 1,200,000,000 |
| Cost of sales | (700,000,000) |
| Gross Profit | 500,000,000 |
| Add: Rental Income of Commercial Property (gross) | 100,000,000 |
| Add: Interest on Treasury bills (gross) | 50,000,000 |
| 650,000,000 | |
| Less operating expenses: | |
| Depreciation | 1,200,000 |
| Penalty | 600,000 |
| Sponsorship to shareholders’ children’s education | 100,000 |
| Interest on loan on capital project | 50,000 |
| Penalty imposed by Regulatory Authority | 290,000 |
| 647,760,000 |
Capital allowance agreed with the Ghana Revenue Authority amounted to GH¢1,700,700.
The management of Thunder Ltd has indicated its willingness to convert the company as an external company into a limited liability company.
Required:
i) Explain THREE (3) reasons why it is better to convert the branch into a limited liability company rather than operate as an external company. (3 marks)
ii) Compute the tax payable and branch profit tax. (7 marks)
iii) What is the tax implication if an external company converts into a limited liability company? (2 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Branch conversion, Branch profit tax, Corporate Tax, External company
- Level: Level 3
- Topic: International taxation
- Series: MAR 2023