Topic: International taxation

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ATAX – May 2017 – L3 – Q4b – International Taxation

Explain the term “Tax Havens”, factors for considering them, and list five countries that are tax havens.

Question

In the words of Benjamin Franklin, “the only things that are certain are death and taxes”. However, in some countries, taxes are not necessarily certain.

Required:
i. Explain briefly the term “Tax Havens”. (4 Marks)
ii. State THREE factors in considering whether a jurisdiction is a Tax Haven. (3 Marks)
iii. State FIVE countries that are Tax Havens. (5 Marks)

Answer

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Tags: International Taxation, Tax Havens, Tax Jurisdiction
Level: Level 3

Topic: International taxation

ATAX – Nov 2016 – L3 – Q7 – Tax Planning and Management

Summarizes key points on tax planning, tax evasion, double taxation agreements, and non-tax factors for investment.

Question

As the Chairman of a Tax Summit in Ikeja, Lagos State, the discussion topics were:

Tax Planning, an Effective Method of Tax Avoidance
Tax Evasion in a Growing Economy
Double Taxation – The Provisions and the Impact
Jurisdiction for Investment – Non-Tax Factors

You are required to:

a) Explain briefly Tax Planning and Anti-Avoidance Legislations put in place by the Government. (3 Marks)
b) Summarize situations that may involve Tax Evasion. (4 Marks)
c) Explain Double Taxation Agreement – Provisions and the Main Objectives. (4 Marks)
d) Summarize Non-tax factors that attract investors in choosing a business jurisdiction. (4 Marks)

Answer

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Tags: Double Taxation Agreement, Investment Factors, Tax avoidance, Tax Evasion, Tax Jurisdiction
Level: Level 3

Topic: International taxation, Tax Planning and Management

ATAX – Nov 2021 – L3 – Q6 – International Taxation

Explains BEPS, its techniques, OECD initiatives, and implications for corporate tax strategies.

Question

At a workshop on “Base Erosion and Profit Shifting (BEPS)” organized by the Federal Ministry of Industries, a resource person explained that BEPS is a corporate tax planning strategy used by multinational corporations to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions, thereby eroding the tax base of the higher-tax jurisdictions.

One of the participants, an engineer and the General Manager of a leading manufacturing outfit based in Jos, with a head office in a European country, struggled to understand the concepts discussed. After seeking clarification from other participants without success, he approached you as the company’s Tax Manager to explain BEPS and whether it would be beneficial for the company (in collaboration with the head office) to engage in such practices.

Required:

As the company’s Tax Manager, you are to draft a paper addressing the General Manager’s concerns, covering the following:

a. Distinction between base erosion and profit shifting. (3 Marks)
b. Techniques of base erosion and profit shifting. (4 Marks)
c. The six key action initiatives of the Organisation for Economic Co-operation and Development (OECD) against base erosion and profit shifting. (6 Marks)
d. The implications of engaging in base erosion and profit shifting. (2 Marks)

Answer

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Tags: BEPS, Corporate Tax Strategy, OECD Initiatives, Profit Shifting, Tax avoidance
Level: Level 3

Topic: International taxation

ATAX – Nov 2021 – L3 – Q5 – International Taxation

Discusses the conditions for significant economic presence and the tax implications for TWITTY Incorporation.

Question

The rapid growth in information and communication technology in Nigeria has brought with it boundless opportunities and changes in the way business activities are conducted. A significant number of transactions in Nigeria, in recent times, are consummated using mobile devices and online payments. In the same vein, the online platforms (mostly operated by international private entities) are perceived by various governments in developing countries (Nigeria inclusive) as undermining the economic interests of their host countries through non-payment of taxes, despite their significant economic presence.

In light of the above, the Finance Act 2019 provides for the treatment of digital and other service providers concerning the significant economic presence of a foreign entity. This provision was followed up with the issuance of Companies Income Tax (Significant Economic Presence) Order 2020 by the Federal Government of Nigeria.

You have been contacted by a foreign online outfit with interest in mobile networking and consultancy, TWITTY Incorporation, California, USA, through its official partner in Nigeria, MAAbioro Partners, to explain issues on the significant economic presence of a foreign entity, deemed to be operating in Nigeria.

Required:

As a tax consultant to TWITTY Incorporation, draft a report explaining the following areas:

a. The objectives of the relevant provisions of Finance Act 2019 and Companies Income Tax (Significant Economic Presence) Order 2020 concerning the significant economic presence of a foreign entity. (3 Marks)
b. Conditions for the determination of significant economic presence for digital activities. (5 Marks)
c. Determination of significant economic presence for technical and consultancy services. (2 Marks)
d. Activities exempted from significant economic presence in Nigeria. (3 Marks)
e. The tax implications of the Order 2020 on the activities of TWITTY Incorporation. (2 Marks)

Answer

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Tags: Compliance, Digital Economy, Finance Act, International Taxation, Significant Economic Presence
Level: Level 3

Topic: International taxation

ATAX – Nov 2020 – Q5 – International Taxation

Explain issues regarding tax havens, including key factors and competitive strategies.

Question

Tax haven is a state, country, or territory where certain taxes are levied at a low rate or not at all. This has created problems for other countries as their products and services are no longer competitive in international markets. However, various international organizations, governments, and other stakeholders are still handicapped in mitigating or totally eliminating this malaise that is threatening the competitive global market.

You have been invited by a manufacturing outfit to help explain certain issues regarding tax haven in practice.

Required:
a. From the perspective of the Organisation for Economic Co-operation and Development (OECD), explain THREE key factors in deciding whether a jurisdiction is a tax haven or not. (6 Marks)
b. How can a country use its tax jurisdiction to address the issue of competition from a tax haven? (5 Marks)
c. Explain the advantages of and provide the criticisms against tax haven. (9 Marks)

Answer

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Tags: International tax, OECD, Tax Havens
Level: Level 3

Topic: International taxation

ATAX – Nov 2020 – Q3 – International Taxation

Provide a report on regional economic integration and trade blocs for Larry Limited’s international market entry.

Question

Larry Limited, Lagos, is a manufacturing company that has been producing household utensils successfully for several years. The company is planning to enter the international market but the management team has little or no information in respect of regional economic integration and trade blocs around the world. The Managing Director of the company has just engaged your professional accounting firm to provide advice on some salient issues in this respect.

Required:
As the Desk Officer in charge of international tax matters in the professional accounting firm, you are to present a report to your principal partner, for his review before sending it to the firm‘s client. Your report should cover the following areas:
a. Distinction between regional economic integration and trade blocs. (4 Marks)
b. Objectives of regional integration. (5 Marks)
c. Benefits of regional economic integration and trade blocs. (4 Marks)
d. Disadvantages of regional economic integration and trade blocs. (3 Marks)
e. Common market and economic union as major types of regional economic integration. (4 Marks)

Answer

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Tags: Economic Integration, International trade, Trade Blocs
Level: Level 3

Topic: International taxation

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

Question

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

Answer

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Tags: Double Taxation Agreements, Foreign subsidiary, International Contracts, Nigerian Tax Laws, Permanent Establishment, Tax liabilities, Withholding Tax
Level: Level 3

Topic: International taxation

ATAX – Nov 2018 – L3 – Q3a – International Taxation

Tax implications for Sadiq Corporation's contracts executed by its Nigerian subsidiary, including PE under Nigeria-UK tax agreement.

Question

(a) Sadiq Corporation was incorporated in Sweden as a limited liability company and has a subsidiary, Omologede Ventures Nigeria Limited located in Akure, Nigeria. Peniel Nigeria Plc awarded a contract to Sadiq Corporation to renovate a rice milling factory in Gboko, Benue State, and another in Abakaliki, Ebonyi State. The contract value for the Gboko factory is $11,064,150, and $7,337,616 for the Abakaliki factory. Sadiq Corporation later sub-contracted the two jobs to its subsidiary in Nigeria. The renovation is expected to be completed within six months.

The following information was submitted to the Federal Inland Revenue Service by Omologede Ventures Nigeria Limited for the year ended December 31, 2017:

Description	Amount (N)
Direct materials	962,100,000
Scaffolding	183,538,320
Administrative expenses on hired professionals	33,352,800
Rentals on equipment	18,708,248
Maintenance of equipment	7,431,688
Personnel card (domestic)	28,803,029
Personnel cost (foreign)	14,738,250
Fees to engineers	11,298,689
Other operational costs	6,512,070

Additional Information:

Capital allowance agreed by Omologede Ventures Nigeria Limited with the Federal Inland Revenue Service for the year was N104,418,744.
60% of the total contract sum was made available to Omologede Ventures Nigeria Limited.
Depreciation is N69,902,092.
70% of the total contract sum was paid at the beginning of the job, while the balance was paid in September of the same year.
The exchange rate at the time of signing the contract was N180 to $1. The rate changed in August of the same year to N195 to $1.

Withholding tax provisions were fully complied with by the two companies, and the tax remitted to the relevant tax authority as and when due.

Required:
As the local consultancy firm in Nigeria, provide advice to the management of the two companies on the tax implications of the contracts for the relevant year of assessment, clearly showing their tax liabilities (if any).
(15 Marks)

Answer

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Tags: Double Taxation Agreements, Foreign subsidiary, International Contracts, Nigerian Tax Laws, Permanent Establishment, Tax liabilities, Withholding Tax
Level: Level 3

Topic: International taxation

TAX – Nov 2015 – L2 – Q4a – International Taxation

This question explains the tax treatment of income earned by a non-resident individual who has spent time in Nigeria.

Question

Mr. Alexis Sanchez was employed by Zenon Ltd as Director Commercial, West and Central Africa with effect from 1 March 2011. He entered Nigeria on the date his employment became effective and remained in Nigeria till 25 August 2011. He returned to Nigeria on 15 January 2012, and remained in Nigeria till 31 July 2012.

Required:
Explain the basis for the taxation of income earned by Mr. Alexis Sanchez in Nigeria for the relevant tax years.

Answer

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Tags: Employment Income, Non-resident, Personal Income Tax Act (PITA), Tax residency
Level: Level 2

Topic: International taxation
Series: NOV 2015

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

Question

The management of Smith Plc, a UK-based company, is considering the possibility of launching its presence in Ghana and it is not sure of the tax implication of the following under the tax laws of Ghana:

i) It is considering making its presence through incorporation in Ghana or creating an external company that is a Permanent Establishment (Branch) instead.
ii) It intends to acquire all its non-current assets through finance lease as against buying the assets outright when it makes its presence in Ghana.
iii) It intends to bring some staff from the United Kingdom to work in Ghana who will be paid half salary in Ghana and the other half paid directly to their accounts in the United Kingdom as against paying their full salary in Ghana.
iv) Management intends to acquire shares in many companies in Ghana as part of efforts to create value for shareholders through dividend receipts as against granting loans to interested companies in Ghana if it is unable to make its presence in Ghana.

Required:
Evaluate the above policy interventions and advise on the tax implication of each to enable the management of Smith Plc to make a decision.

Answer

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Tags: Dividends, Finance lease, Incorporation, Non-current Assets, Permanent Establishment, Tax implications
Level: Level 3

Topic: International taxation, Permanent establishment
Series: NOV 2018

AT – Nov 2017 – L3 – Q4b – International taxation

Calculating the CIF and VAT/NHIL for imported goods.

Question

Obiba JK Enterprise imports component parts from China and assembles them into various forms of office equipment. On 1 January 2016, component parts were imported with the following details:

Item	Cost ($)
Cost of containers	2,200
Cost of packing for labor and materials	550
Cost of materials used in production	15,600
Cost of tools inserted in the components	3,750
Development and design costs	630
Royalties and licenses	330
Cost of labor and others in China	7,400
Shipping and transport to Tema Harbour	GH¢16,200
Loading, unloading, and handling charges	GH¢5,400
Cost of marine insurance	GH¢2,958.30
Assembling overhead cost	GH¢23,400
Fees for freight services to Tema Harbour	GH¢3,700

Additional Information:

Trade discount of 2% on the cost of goods (not yet accounted for).
Excise duty of $560 paid in China (included in the labor cost).
Contingent discounts and rebates of 1% (already accounted for).
Technical assistance of GH¢3,000 after the goods arrived at the factory.
Average exchange rate was $1 = GH¢3.11.
Import duty is 20%.

Required:
i) Compute the Cost, Insurance, and Freight (CIF), clearly showing workings of each component.

(9marks)

ii) Compute the VAT/NHIL. (1 mark)

Answer

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Tags: Cost Insurance and Freight (CIF), Import Duties, Tax computation, VAT/NHIL
Level: Level 3

Topic: International taxation
Series: NOV 2017

AT – March 2023 – L3 – Q3f – International taxation

Discuss two harmful effects of double taxation on international trade and investment.

Question

Evaluate TWO (2) harmful effects of double taxation. (3 marks)

Answer

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Tags: Double Taxation, International business, Tax barriers
Level: Level 3

Topic: International taxation
Series: MAR 2023

AT – March 2023 – L3 – Q3e – International taxation

Assess the reasons for countries entering into tax treaties and their importance in reducing tax barriers.

Question

Countries have enjoyed tax treaties while others have criticised the whole idea of tax treaty arrangements. Treaties may be bilateral or multilateral. Many countries weigh the benefits of treaties before they enter into them in order not to lose out.

Required:
Assess the rationale for tax treaties. (2 marks)

Answer

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Tags: Double Taxation, International trade, Tax treaties
Level: Level 3

Topic: International taxation
Series: MAR 2023

AT – May 2016 – L3 – Q5a – International taxation

Calculate tax credit relief available for a resident with income from the UK under a double taxation agreement.

Question

Mrs. Olivia Quartey is a resident in Ghana and works as the Finance Director of Ghana Trustees Limited. She earned a gross salary of GH¢30,000.00 for the 2014 year of assessment. She contributed 5.5% of her salary to the social security fund. In 2014, the gross royalties that accrued to her was £4,000 from the United Kingdom from which tax of £800 had been deducted with the remainder of £3,200 being remitted to her in Ghana.

Granted that Ghana has a double taxation agreement with the United Kingdom, you are required to calculate the tax credit relief (if any) available to Mrs. Olivia Quartey for the year 2014.
[Exchange rate: GH¢4.50 = £1.] (16 marks)

Tax Rate Table

Income (GH¢)	Rate (%)
First 1,584.00	Free
Next 792.00	5
Next 1,104.00	10
Next 28,200.00	17.5
Exceeding 31,680.00	25

Answer

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Tags: Double Taxation, Exchange Rate, Ghana, Tax Credit, UK
Level: Level 3

Topic: International taxation
Series: MAY 2016

AT – March 2023 – L3 – Q3c – International taxation

Discuss the extent to which foreign companies are liable to tax in Ghana.

Question

“Foreign companies which are non-resident can ply their businesses in Ghana and will not pay taxes in Ghana but rather in their home countries.” This was a statement that was made at a tax forum in Ghana as part of tax planning measures by a young tax graduate, who was asked to share his thoughts on non-resident persons and their tax issues. This created some arguments at the programme.

Required:
To what extent should foreign companies be liable to tax in Ghana?

Answer

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Tags: Corporate Tax, Foreign companies, Non-resident taxation
Level: Level 3

Topic: International taxation
Series: MAR 2023

AT – March 2023 – L3 – Q3a – International taxation

Evaluate the taxation of global income of Ghanaian businesses in accordance with the Income Tax Act, 2015 (Act 896).

Question

In an ICAG taxation lecture, the class captain said he read an article from the internet that states, “Ghanaian business entities which conduct businesses across the globe are subject to tax in Ghana.”

This statement ignited a debate in the class. Your class lecturer walked into the classroom to witness this argument and decided to show interest in the topic. He has asked that the class should take up the issue as a class assignment.

Required:
Evaluate this statement in the light of the Income Tax Act, 2015 (Act 896).

Answer

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Tags: Corporate Taxation, Global income, Tax residency
Level: Level 3

Topic: International taxation
Series: MAR 2023

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)

Answer

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Tags: Branch conversion, Branch profit tax, Corporate Tax, External company
Level: Level 3

Topic: International taxation
Series: MAR 2023

AT – Nov 2019 – L3 – Q4b – International taxation

Advise on the tax implications of a distribution from a non-resident trust to resident beneficiaries in Ghana.

Question

Askona is run as a Trust for Maame Kukua, a Ghanaian based in the USA. Askona is based in the USA and represents a lot of people in trust arrangements. Under the arrangement, Maame Kukua who is currently living in the USA has acquired a transporter vehicle for Askona to use it for the benefit of her two children -Yaaya Mensah and Nana Yaw Mensah who are both resident in Ghana.

In January 2019, Askona made a distribution to Yaaya Mensah and Nana Yaw Mensah in Ghana via Western Union Money Transfer. Maame Kukua has asked you, a young Tax Expert in Ghana to advise on the taxability or otherwise of the above transaction in Ghana.

Required: Advise on whether a distribution by a non-resident trust such as Askona is taxable and how?

Answer

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Tags: Non-resident trusts, Tax implications, Trust distributions
Level: Level 3

Topic: International taxation
Series: NOV 2019

AT – Nov 2019 – L3 – Q3b – International Taxation

Recommend and justify the most suitable transfer pricing method for Pyrotechnics Ghana Limited.

Question

Pyrotechnics Ghana Limited was established for the main purpose of providing marketing support services to Pyrotechnics UK Limited, its parent company. Pyrotechnics Ghana Limited’s expenses are reimbursed with a 5% mark-up, which constitutes its total revenue.

Required:

What is the best transfer pricing method that can be used to test this transaction? Justify your response and show how the method will be applied.

Answer

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Tags: Arm's Length, Multinational Enterprises, Transactional Net Margin Method (TNMM), Transfer Pricing
Level: Level 3

Topic: International taxation
Series: NOV 2019

AT – Nov 2019 – L3 – Q2b – International taxation

Explain the benefits that countries A and B stand to gain from a Double Taxation Agreement (DTA).

Question

Countries A and B are contemplating a Double Taxation Agreement (DTA). The two countries are of the view that the Double Taxation Agreement will create a lot of tax benefits to citizens and other persons in both countries. Others have criticized this move as counter-productive and not worth the time of either country.

Your inputs are being solicited as an ICAG Finalist and a patriotic citizen of Country A to provide the benefits to be put on the website of the Ministry of Finance of Country A to enable people to read, appreciate, and support the agreement.

Required:

Explain FIVE (5) benefits that the two countries stand to gain from this arrangement.

Answer

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Tags: Double Taxation Agreement, International Taxation, Tax Benefits
Level: Level 3