Question Tag: Tax Compliance

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  • 10 Marks

AT – Nov 2024 – L3 – Q5a – Transfer Pricing Documentation and Compliance

Explain the required transfer pricing documentation and exemptions under Ghana’s Transfer Pricing Regulations, 2020 (L.I. 2412).

You are a Senior Transfer Pricing Associate of Fameye and Associates. You have received the following email from a former client, Asew LTD, who has received a Transfer Pricing audit assessment from the Ghana Revenue Authority (GRA) for the 2021, 2022, and 2023 years of assessment.

Subject: Transfer Pricing Compliance Assistance

Hello Team,

I came to the office today and received a letter from the GRA regarding a tax assessment on transfer pricing issues. According to the letter, our company owes the GRA some penalties for non-compliance with the transfer pricing regulations. I am confused as to what our compliance obligations are. I would need your assistance on how we can comply with the transfer pricing laws of Ghana.

I hope to hear from you soon.

Kind regards,

Nii Armaah
Managing Director, Asew LTD

Required:

In line with the provisions of the Transfer Pricing Regulations, 2020 (L.I. 2412), draft a response for the review of your Tax Partner, covering the following:

(i) The required transfer pricing documentation that must be maintained by companies in Ghana under the three-tier transfer pricing documentation requirements, including the time by which these must be filed with the GRA, where applicable.                      (ii) TWO conditions or circumstances under which a company may be exempted from compliance with any of the above documentation requirements.

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  • 3 Marks

AT – Nov 2024 – L3 – Q3b – Prohibitions on Representation and Tax Advice

Explain the prohibitions on representation and tax advice in relation to tax consultants under the Revenue Administration Act, 2016 (Act 915).

With reference to the Revenue Administration Act, 2016 (Act 915), what constitutes prohibitions on representation and tax advice in relation to tax consultants?

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  • 5 Marks

PT- Nov 2024 – L2 – Q5d – Data Analytics in Taxation

Explain how data analytics can be used to detect tax evasion and provide examples of how GRA might use data analytics to enhance tax compliance.

GRA’s use of data analytics has become increasingly important in identifying tax evasion and improving compliance.

Required:
i) Explain how data analytics can be used to detect tax evasion. 
ii) Provide TWO examples of how GRA might use data analytics to enhance tax compliance.

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  • 5 Marks

PT – Nov 2024 – L2 – Q5c – E-Auditing and Tax Compliance

Explain e-auditing, its differences from traditional tax audits, and discuss advantages for taxpayers and tax authorities.

The integration of Information Technology in tax administration has enabled the Ghana Revenue Authority (GRA) to adopt e-auditing processes, allowing for the remote examination of taxpayers’ records.                                                                                                      Required:
i) Describe the process of e-auditing and how it differs from traditional tax audits. 
ii) Discuss TWO advantages of e-auditing for both the taxpayer and the tax authority.

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  • 5 Marks

PT – Nov 2024 – L2 – Q5b – Withholding Tax & VAT Calculation

Compute VAT and direct tax withheld on a taxable supply of medical consumables to a tax withholding agent.

Charley Chemist LTD made a taxable supply of medical consumables amounting to GH¢750,000 exclusive of VAT and levies on 23 November 2023 to the University of Ghana Medical Centre. The University of Ghana Medical Centre is a withholding tax agent for both VAT withholding and Direct Tax withholding.

Required:
i) Compute the amount of VAT withheld by the University of Ghana Medical Center. 
ii) Compute the amount of direct tax withheld by the University of Ghana Medical Centre.

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  • 5 Marks

PT – Nov 2024 – L2 – Q5a – Notification to Commissioner-General for Non-Resident Contracts

Requirements for notifying the Commissioner-General when a resident contracts a non-resident.

For the purpose of withholding tax, the Income Tax Act, 2016 (Act 896) requires a resident person who enters into a contract with a non-resident person which gives rise to income from Ghana to notify the Commissioner-General within thirty (30) days.

Required:

State the items that must be detailed in the notification to the Commissioner-General.

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  • 5 Marks

PT – Nov 2024 – L2 – Q2e – Tax Audit and Under-declaration of Sales

Action to be taken regarding an under-declared sales revenue during a tax audit.

You have been engaged as an Accounts Officer in Abokobi LTD. Sales of GH¢10,000,000 were inadvertently under-declared. A team from the Ghana Revenue Authority (GRA) is at your premises conducting an audit. The GRA Audit Team did not review the sales revenue. After the audit, you noted that the amount constituting the under-declaration of the sales was mistakenly credited to the suppliers’ account in the ledger.

Required:

Detail out your position on the above as to what action to take.

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  • 2 Marks

PT – Nov 2024 – L2 – Q2a – Integration of Revenue Agencies into GRA

Explanation of the benefits resulting from the consolidation of revenue agencies into GRA.

In 2009, the former revenue agencies (VAT, IRS, and CEPS) were consolidated into the Ghana Revenue Authority (GRA). This integration was anticipated to provide certain benefits to both taxpayers and the overall tax administration.

Required:

State FOUR benefits resulting from the integration of the revenue agencies into the GRA

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 20 Marks

ATAX – May 2019 – L3 – Q2 – Tax Administration and Dispute Resolution

Discuss the distinction between tax evasion and avoidance, provide solutions, and evaluate Nigeria’s anti-avoidance legislation.

You have been approached by the managing director of a manufacturing company, Ojieaga Integrated Limited, for professional advice on tax evasion and tax avoidance and their challenges to an equitable tax system in Nigeria. Your report is expected to guide the operation of the business, having been subjected in the last three years to various forms of fines and penalties by the Federal Inland Revenue Service on confirmed cases of sharp business practices with their attendant loss of tax revenue to the government.

Required:
Having accepted the terms of engagement, you are to write a report to management for consideration at its next meeting, dealing with the following areas of concern:

a. Distinction between tax evasion and tax avoidance, highlighting THREE examples of each case. (6 Marks)
b. Seven solutions to the problem of tax evasion and tax avoidance. (7 Marks)
c. Comment on anti-avoidance legislations in Nigeria. (7 Marks)

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  • 30 Marks

ATAX – May 2019 – L3 – Q1b – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

b. Priceless Oil Limited commenced crude oil production in Nigeria in 2006. The company has provided the following financial report for the year ended December 31, 2018:

Additional Information:

  1. Posted price for exported crude oil averaged $52/barrel (at an exchange rate of ₦306 to $1).
  2. Included in other income: ₦38,000,000 from crude transportation (cost: ₦16,250,000).
  3. Natural gas contract with Tommy Limited: value ₦655,000,000, load factor 54%.
  4. Depreciation of ₦120,250,000 was included in production costs.
  5. Qualifying capital expenditures:
Type Date Location Amount (₦)
Storage tank March 12, 2018 On-shore 23,500,000
Plant and equipment November 15, 2018 Continental Shelf of 130
metres of water depth		 75,000,000
  1. Capital allowances brought forward: ₦33,700,000; for the year: ₦88,500,000.
  2. Admin expenses include ₦3,500,000 stamp duties for debentures.
  3. Specific bad debts written off: ₦39,500,000.
  4. Donations were wholly expended for petroleum operations.
  5. ₦12,250,000 was paid to retrieve petroleum-related data (included in miscellaneous expenses).
  6. ₦20,500,000 interest was paid to an associate company at market rate.

Prepare and submit a report on the following computations:
i. Assessable profit (12 Marks)
ii. Chargeable profit (6 Marks)
iii. Chargeable tax (6 Marks)
iv. Total tax payable (6 Marks)

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  • 2 Marks

ATAX – May 2019 – L3 – Q1a – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

In line with provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended), explain “accounting period” of a petroleum exploration company. (2 Marks)

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  • 5 Marks

AT – Nov 2014 – L3 – SC – Q6b – Double Taxation Relief

Provide advice on mitigating double taxation for an individual earning income across multiple countries.

Rev. (Dr.) Smart is an individual who has worked in many countries. Many of his disciples regard him as a “Great man of God” because he has won so many souls and performed real miracles.

He had worked in Ghana, South Africa, Zimbabwe, United Kingdom, Canada, Germany, Netherlands, and the United States of America.

His annual income is earned piecemeal from each country where he ministers. From his itinerary in 2013, as provided by his Personal Assistant, he had visited more than fifteen countries including Nigeria, and in some cases, stayed for more than two months in a few of the countries visited.

He is faced with how to determine his taxable income in each of the countries visited as well as tax payable in Nigeria where he permanently resides.

You have been appointed as the Tax Consultant to Rev. (Dr.) Smart.

Required:
Advise on the relevant provisions of the Tax Laws that will mitigate the possible effect of paying tax on the same income in two or more countries.

(5 Marks)

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  • 10 Marks

AT – Nov 2014 – L3 – SC – Q6a – Double Taxation Reliefs and Credits

Identify double taxation relief and compute the tax liability for a Nigerian company with foreign operations.

Sunproof International Inc. has been in the tyre manufacturing business in Nigeria and Sierra Leone for over ten years.

The Company’s operating results for the year ended 31 December 2012 were as follows:

Particulars N
Income from Nigeria 75,000,000
Income from Sierra Leone 33,000,000
Overheads 60,000,000
Depreciation – Nigeria 6,750,000
Depreciation – Sierra Leone 1,125,000
Donations to Island Club 375,000
Foreign tax suffered 6,300,000

Other information:

  1. Net profit attributable to the Company in Sierra Leone was N7,725,000.
  2. Capital allowances agreed with Tax Officials for operations in Nigeria and Sierra Leone were N5,310,000 and N2,175,000 respectively.
  3. Assume the Company is a wholly Nigerian company.

Required:
i. Identify the Double Taxation Relief available to the Company. (4 Marks)
ii. Compute the tax liability of the Company for the relevant Year of Assessment.

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  • 30 Marks

AT – Nov 2014 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Explain penalties for non-compliance, compute profit and tax liabilities, and detail exemptions from minimum tax liability.

The Tax Consultants, ABFR Consult, received an e-mail from Mrs. Deboh Komo, Managing Director of Deboko Nigeria Limited. Extracts of her e-mail are as follows:

  1. The company was incorporated on 1 February 2007.
  2. It commenced business as importers of new engines for tricycles on 1 May 2009.
  3. The Directors chose 30 June as the year-end and made the first financial statements up to 30 June 2010.
  4. The company did not file any tax returns to date due to a general lull in business activities.
  5. The tax monitoring section of the Federal Inland Revenue Service (FIRS) visited the company on 2 September 2014, uncovering non-compliance.
  6. No tax registration was done, and no returns were filed.
  7. The Accounts Officer advised the company to register for all statutory payments, including Value Added Tax (VAT) and Companies Income Tax, but the management delayed.
  8. The company pleaded for leniency, but the FIRS insisted on full compliance with tax laws.

Additional Information:

  1. Statement of Profit or Loss and Other Comprehensive Income:
Period Ended 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Operating Profit/(Loss) 1,060 960 720 (504)
Depreciation 380 120 120 153
Staff Loans Written Off – – – 40
Stamp Duties on Incorporation – – – 16
Sales Tax 120 80 44 40
Donations to Christian Association 60 – – 10
Specific Bad Debts Written Off 28 – – 14
  1. Statement of Financial Position:
Item 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Paid-Up Capital 30,000 15,000 15,000 15,000
Deposit for Shares 25,000 10,000 5,000 –
Net Assets 101,500 84,110 76,700 66,000
Revenue 210,500 180,400 162,000 104,000
Gross Profit 16,400 14,200 12,800 10,200
  1. Capital Allowances Agreed:
Year of Assessment 2014 2013 2012 2011 2010 2009
Capital Allowances 140 150 150 250 200 300

Requirement:

(a) Explain the penalties for late submission of annual returns to the FIRS. (4 Marks)

(b) Compute the Total Profit and Tax Liabilities of the company for the relevant years of assessment. (24 Marks)

(c) Explain the conditions for exemption from minimum tax liability under the Companies Income Tax Act CAP C21 LFN 2004 (as amended). (2 Marks)

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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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  • 20 Marks

ATAX – Nov 2021 – L3 – Q3 – Tax Planning and Management

Analysis of tax planning, avoidance, thin capitalisation concepts, and strategies for Dragbat Limited to improve tax efficiency.

The board of directors of Dragbat Limited, Lagos, a medium-sized company, at its last meeting, deliberated on the company’s tax-related issues vis-à-vis one of its major competitors in the same line of business. The Managing Director presented the audited accounts of the two companies for the previous three years. He affirmed that their company has been paying more corporate and tertiary education taxes than their competitors, while returning lower profit before tax in each of the years under review. The board has since directed the Managing Director to do a thorough investigation on how competitors, according to the Chairman of the board, are having it easy with the tax authorities.

With the assistance of a former course-mate in the university, who works in the Finance unit of a competitor’s organisation, the Managing Director was informed that the competitor was involved in tax planning and tax avoidance activities, which have helped in reducing the company’s tax liabilities over the years.

Being an engineer with sparse knowledge of accounting and taxation, the Managing Director has contacted you as the company’s tax consultant to help explain some fundamental issues in tax planning and tax avoidance. To assist with this assignment, the Managing Director of Dragbat Limited provided you with the audited financial statements of the two competing companies for the last three years. He also informed you that the major difference between the two companies is that Dragbat Limited is servicing a loan facility of ₦120 million obtained five years ago, and the company is not finding it comfortable in implementing the terms of the loan, despite its increased profitability over the last three years.

The board will be meeting in a fortnight to consider the report on the preliminary investigation, and the Managing Director expects you to submit your report to him next week.

Required:

As the company’s tax consultant, you are expected to address and advise on the following issues in your report:

a. The concepts of tax planning, tax avoidance, and thin capitalisation. (9 Marks)
b. Tax planning activities and strategies. (6 Marks)
c. Tax implications for companies that practice tax planning, tax avoidance, and thin capitalisation. (5 Marks)

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  • 30 Marks

ATAX – Nov 2021 – L3 – Q1 – Corporate Tax Compliance and Reporting

Calculation of tax liabilities, corporate tax compliance, and adjustments in financial reporting.

Carrol Nigeria Limited, a medium-sized company, commenced business in 2011. The company has three subsidiaries in the manufacturing of household utensils and baby products. Over the last three years, its fortunes have dwindled due to high costs of imported raw materials, overheads, low patronage from customers, and increasing demands from the host communities for social amenities.

Due to the challenging business environment, the board decided in 2016 to reduce workforce and permanently close one of its subsidiaries. This led to the appointment of a young accountant with limited taxation and fiscal policy knowledge as the Group Accountant after two Finance Department staff were affected.

In the past three years, the company faced challenges with tax authorities on tax compliance. The Group Managing Director was embarrassed when informed by the tax officer that essential records necessary for determining tax liabilities were not maintained. Gaps were also observed in the annual returns filed by the company, and the Revenue Service is conducting a back duty audit.

The Group Managing Director has sought assistance in addressing these challenges and provided documents for recomputation of the company’s income tax liabilities for the year ended December 31, 2020.

The statement of profit or loss for the year ended December 31, 2020, is as follows:

Additional Information:

  1. Other income included ₦320,000 realized from the disposal of an old plant.
  2. Administrative expenses included ₦250,000 paid to a legal practitioner for the defense and release of the company’s driver caught by traffic officers.
  3. 30% of motor running expenses was expended on the personal expenses of the Managing Director.
  4. 20% of the donation was paid to a State Government fund assisting insurgent victims.
  5. Repairs and maintenance included ₦215,000 for erecting a gate destroyed during a youth protest.
  6. Allowance for doubtful debts comprised ₦600,000 in general provision and ₦400,000 in specific provision.
  7. Miscellaneous expenses included ₦450,000 for hamper gifts to customers during Sallah and Christmas.
  8. A review revealed the gross turnover was understated by ₦750,000.
  9. The following is the schedule of qualifying capital expenditure on property, plant, and equipment:
    Nature Date of Acquisition Amount (₦’000)
    Factory building September 8, 2016 3,800
    Furniture & fittings October 12, 2016 1,600
    Motor van June 19, 2018 4,200
    Factory building March 8, 2020 6,500
    Furniture & fittings April 15, 2020 2,000
    Industrial plant July 1, 2020 5,700
    Motor van December 20, 2020 4,240
  10. Unutilized capital allowances brought forward was ₦1,500,000, with a balancing charge of ₦155,000 on disposal of the old plant.

Required:
As the company’s tax consultant, prepare a report to the Group Managing Director covering the following:

a. Provisions of the Companies Income Tax Act CAP C21 LFN 2004 (as amended) and Finance Act 2020 regarding maintenance of books or records of accounts (4 Marks)

b. Back duty audit and its implications (4 Marks)

c. Computation of the company’s tax liabilities (with supporting schedules) for the relevant tax year (22 Marks)

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  • 30 Marks

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

The recent trade tariff war on goods exported between the United States and China has opened a vista for corporate players in the two countries and their allies to venture into new areas considered to be business-friendly.

Sunchi Limited, Shanghai, is a computer accessories company that was incorporated in China in 2003. The company established its subsidiary outlet, Sunchi West Africa Holdings, in Ibadan, Nigeria, on January 1, 2018. The Nigerian company adopted December 31, annually (same as the parent company) as its end of financial year.

The first set of consolidated accounts was audited by a reputable audit firm based in China. Taxes for both business operations were also paid in China.

The Nigerian tax inspectors from the Federal Inland Revenue Service demanded for annual returns and tax computations from the subsidiary company but the General Manager of the company claimed that the company had paid personal income tax of its employees and directors, value-added tax on imported equipment, and relevant custom duties. Furthermore, since the parent company is not registered in Nigeria, there is no reason why it should be liable to companies’ income tax. The issue is yet to be resolved.

The Managing Director of the subsidiary company in Nigeria, with the permission of the head office in China, appointed you as the company‘s tax consultant to help unravel the issue of payment of companies’ income tax by resident and non-resident companies operating in Nigeria. He also submitted to you the statement of profit or loss for the year ended December 31, 2018, after conversion of the transactions in head office‘s Chinese currency (Yuan) to Nigerian Naira.

(i) Miscellaneous income:
This consists of income realised from the sale of component parts to the head office. The transaction was made at open market price.

(ii) Legal expenses comprise:

Description Amount (N’000)
Debt collection 800
Preliminary expenses 2,100
Land acquisition 550
Retainership fee 750
Total 4,200

Required:
As the company‘s tax consultant, you are to prepare a report to the management of Sunchi Limited taking into consideration the following:
a. Resident and non-resident companies (4 Marks)
b. Circumstances under which profit of a non-resident company will be liable to tax in Nigeria. (10 Marks)
c. Relationship between a:

  • Nigeria branch and the parent company (3 Marks)
  • Nigeria subsidiary and the parent company (3 Marks)
    d. Overseas branch of a Nigerian company (3 Marks)
    e. Overseas subsidiary of a Nigerian company (3 Marks)
    f. Advise on, if any, the companies income tax payable by the two business operations in Nigeria. (14 Marks)

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