Chapter 3 - International tax

Question 1

What are the 3 main ways in which relief for double taxation is given?

Answer 1

• Exemption
• Tax credit
• Deduction

Question 2

What are the features of operating an overseas operation as a subsidiary?

Answer 2

• Overseas subsidiary is a separate entity for tax purposes
• Loss relief may not be available
• Transferred assets to parent company may result in a cgt liability

Question 3

What are the features of operating a branch overseas?

Answer 3

• Treated as an extension of the existing company’s activities
• Losses unavailable for group relief
• Existing company subject to capital tax on gains
• Assets freely transferred

Question 4

What is the formula for underlying tax?

Answer 4

(Tax on profits/profit after tax) x Gross dividend

Question 5

What is underlying tax?

Answer 5

tax on profit used to pay dividend

Question 6

What is withholding tax?

Answer 6

Some countries deduct tax at source, net income then received by the beneficiary in the foreign country

Question 7

What is the OECD model tax convention?

Answer 7

Profits can be taxed in a country if a company has a permanent establishment in that country

Question 8

When does transfer pricing apply?

Answer 8

Applies to group situations when inter-company transactions take place on favourable terms

Question 9

What are the rules for transfer pricing?

Answer 9

• Goods/services result in an adjustment in the CT computation for the advantage gained
• Provision of loan finance, if exceeds the amount a 3rd party would provide, not arms length (thin capitalisation)