14. Tax for Corporates

Question 1

What are the 5 main sources of tax rule?

Answer 1

1. Domestic legislation
2. Case law
3. Domestic guidelines and interpretations
4. Directives from supranational bodies (e.g EU)
5. International taxation agreements

Question 2

What is code law?

Answer 2

Where accounting rules are driven by tax laws

Question 3

What must companies do in order to comply with legislation?

Answer 3

Keep adequate financial statement records;
for a specified minimum length of time, and;
prepare and submit tax calculations and payment by specified deadlines.

Question 4

What are the 3 benefits of deadlines for tax submission?

Answer 4

1. Payers who when to pay
2. Authorities can forecast cash flow
3. Authorities can impose penalties

Question 5

Why must companies keep records of their transfer pricing policies?

Answer 5

To show that the price of goods and services sold between companies in the same group as the same as if the transactions where at arms length

Question 6

What do the tax authorities have the power to do? (7)

Answer 6

1. Review and query tax returns
2. Request special reports
3. Examine supporting documents
4. Examine records of previous years
5. Impose penalties and interest on the late payment of tax
6. Enter and search a building
7. Exchange information with other authorities
   NOT to arrest

Question 7

What 3 things are adjusted for when going from accounting profit to taxable profit?

Answer 7

Exempt income, disallowable expenses, and adjustment between accounting and tax deprn

Question 8

Why is depreciation not allowable for tax purposes?

Answer 8

Because its application is not consistent

Question 9

What is the tax base/tax written down value of an asset?

Answer 9

The NPV but using tax depreciation

Question 10

What happens in the year of disposal of a non current asset from a tax perspective?

Answer 10

There is a balancing adjustment in the taxable profit calc:

• a balancing allowance deducted if the asset is sold for lower than its tax base
• a balancing charge added if it is sold for more than its tax base

Question 11

What is the balancing charge applied if an asset is sold for higher than its original cost?

Answer 11

All of the capital allowances (tax deprn) previously given (plus probably capital gains tax)

Question 12

What is the tax assessment for the year if a business makes a loss?

Answer 12

Nil

Question 13

What are the 4 common ways that trading losses can be used for tax relief?

Answer 13

• Carry forward to future profits
• Carry back against previous profits
• Offset against group profits
• Offset against capital gains in the same period

Question 14

What happens if a company makes a trading loss in the year of cessation?

Answer 14

Can carry back the loss and get a tax refund

Question 15

What is capital gain?

Answer 15

This covers gains made on the disposal of assets such as investments or other non current assets

Question 16

What is the amount of capital gain that is taxable?

Answer 16

Cost of assets (Cost plus allowable expenses)

Question 17

What is the allowance for inflation on capital gains called?

Answer 17

Indexation

Question 18

What is rollover relief?

Answer 18

Payment of tax on a capital gain can be delayed if the full proceeds from the sale of an asset are reinvested in a replacement asset

Question 19

What happens if an asset is sold for less than its cost?

Answer 19

No capital gain will arise, a balancing adjustment is added to reduce the taxable profit, and the loss could be offset against other capital gains in the past or future (or trading income in the same period) depending on the tax rules

Question 20

When does a tax group exist?

Answer 20

When one company controls another, possibly through the acquisition of more than 50% of the shares

Question 21

What happens to losses in regards to tax groups?

Answer 21

Most countries allow trading losses to be transferred between companies in a tax group. Generally NOT capital losses.