14. Tax for Corporates Flashcards
What are the 5 main sources of tax rule?
- Domestic legislation
- Case law
- Domestic guidelines and interpretations
- Directives from supranational bodies (e.g EU)
- International taxation agreements
What is code law?
Where accounting rules are driven by tax laws
What must companies do in order to comply with legislation?
Keep adequate financial statement records;
for a specified minimum length of time, and;
prepare and submit tax calculations and payment by specified deadlines.
What are the 3 benefits of deadlines for tax submission?
- Payers who when to pay
- Authorities can forecast cash flow
- Authorities can impose penalties
Why must companies keep records of their transfer pricing policies?
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
What do the tax authorities have the power to do? (7)
- Review and query tax returns
- Request special reports
- Examine supporting documents
- Examine records of previous years
- Impose penalties and interest on the late payment of tax
- Enter and search a building
- Exchange information with other authorities
NOT to arrest
What 3 things are adjusted for when going from accounting profit to taxable profit?
Exempt income, disallowable expenses, and adjustment between accounting and tax deprn
Why is depreciation not allowable for tax purposes?
Because its application is not consistent
What is the tax base/tax written down value of an asset?
The NPV but using tax depreciation
What happens in the year of disposal of a non current asset from a tax perspective?
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
What is the balancing charge applied if an asset is sold for higher than its original cost?
All of the capital allowances (tax deprn) previously given (plus probably capital gains tax)
What is the tax assessment for the year if a business makes a loss?
Nil
What are the 4 common ways that trading losses can be used for tax relief?
- Carry forward to future profits
- Carry back against previous profits
- Offset against group profits
- Offset against capital gains in the same period
What happens if a company makes a trading loss in the year of cessation?
Can carry back the loss and get a tax refund
What is capital gain?
This covers gains made on the disposal of assets such as investments or other non current assets
What is the amount of capital gain that is taxable?
Cost of assets (Cost plus allowable expenses)
What is the allowance for inflation on capital gains called?
Indexation
What is rollover relief?
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
What happens if an asset is sold for less than its cost?
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
When does a tax group exist?
When one company controls another, possibly through the acquisition of more than 50% of the shares
What happens to losses in regards to tax groups?
Most countries allow trading losses to be transferred between companies in a tax group. Generally NOT capital losses.
