- 6 Marks
AT – Nov 2016 – L3 – Q3a – Business income – Corporate income tax
Analyze the treatment of interest and foreign exchange loss under thin capitalization rules.
Question
a) The current level of government borrowing has become a topical issue for discussion, causing observers to wonder whether borrowing is good or bad. In the light of this, you are required to:
Below is the capital structure of Nyameke Ghana Limited for the 2014 year of assessment:
| GH¢ | |
|---|---|
| Equity | 20,000,000 |
| Loans | 80,000,000 |
| Total | 100,000,000 |
The loans were taken by Nyameke Limited from the parent company based in Nigeria. During the year under review, the subsidiary paid GH¢700,000 as interest on the loan and also incurred an exchange loss of GH¢500,000 on the repayment of a loan taken earlier from the parent company.
Required:
Determine how the above transaction will be treated for tax purposes. (6 marks)
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