- 6 Marks
AT – NOV 2021 – L3 – Q2c – International taxation | Business income – Corporate income tax
Advise on tax implications of loan forgiveness between a Korean parent company and its Ghanaian subsidiary.
Question
Yelbateng Ltd is a Korean company and has a subsidiary in Ghana, by the name Yelbateng Ghana Ltd.
The parent company in 2008 gave a loan facility to the subsidiary to support its operations. However, interest on the loan from 2009 to 2019 came to $8,000,000 after applying a thin capitalisation rule in taxation. As a result, the total amount was accrued by Yelbateng Ghana Ltd, as the company did not have money to pay the interest as agreed in the loan contract.
The total amount of the loan was $20 million. In the year 2020, the Board took a decision to relief the subsidiary of the loan obligation, meaning the loan with its interest was not going to be repaid by the subsidiary.
Required:
You have been invited as a final level candidate to advise the company on the tax implication of this arrangement. (6 marks)
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