ASB4442 International Taxation - Policy and Practice

Reference no: EM132770319

ASB4442 International Taxation - Policy and Practice Assignment - Bangor University, UK

SECTION A - YOU MUST ANSWER BOTH QUESTIONS 1 AND 2

Question 1 - Adam Smith's Wealth of Nations was published in 1776 and set out four canons of taxation: the desirable characteristics for a tax system,

Required (you must answer parts (a) and (b)):

(a) Describe each of the four canons of taxation.

(b) Critically appraise the canons of equity, certainty and convenience with relation to the UK income tax system and state which you consider to be the most important of these with respect to young workers, giving reasons.

Question 2 - (you must answer parts (a) and (b))

(a) Explain the significance of transfer pricing in the context of international corporation tax and discuss why it can give rise to uncertainty as to a company's corporate tax liability.

(b) Explain and discuss the advantages and disadvantages of a global formulary apportionment approach to transfer pricing, for both a multinational corporation (MNC) and a tax authority.

Section B - Choose any THREE questions from five in this section

Question 3 - (answer both parts (a) and (b)):

Amal is a sole trader, selling fashion accessories. Her accountant has prepared the following income statement for the year ended 30 September 2020.

	£	£
Turnover		600,000
Less: Cost of sales		(300,000)
Gross profit		300,000
Less:
Wages (note 1)	99,500
Rent and utilities (note 2)	20,000
Advertising	10,000
Insurance (note 3)	3,000
Delivery costs	20,000
Legal and professional fees (note 4)	50,000
Repairs and renewals (note 5)	20,000
Deprecation	3,000
Bad and doubtful debts (note 6)	1,100
Telephone and internet	1,000
Packaging	2,000
Loss on disposal of fixed asset	500
Sundry expenses (note 7)	2,000
		(232,100)
Net profit		67,900

Further information:

Note 1: Wages include Amal's annual salary of £24,750.

Note 2: It has been agreed that £180 of this expense relates to electricity for Amal's domestic use at her home.

Note 3: Insurance includes £1,200 in respect of Amal's mother's private health insurance.

Note 4: Legal and professional fees are as follows:

Debt collection 3,000

Legal fees for suing a customer for non-payment 8,000

Fees relating to the potential purchase of new premises 35,000

Audit and accountancy 4,000

Note 5: Repairs and renewals are as follows:

Minor repairs 2,000

Decoration of offices 6,000

Installation of new improved heating system 12,000

Note 6: Half of the bad and doubtful debts expense is in respect of a customer who went bankrupt. The remining balance is in respect of a general provision for doubtful debts.

Note 7: Sundry expenses are as follows:

Cleaning 600

Client entertaining 450

Staff entertaining 950

Note 8: Amal took some items from stock to give to her friends as gifts. The total cost of these items was £200. All items of stock are sold with a 100% mark up. Amal did not make any contribution towards these items.

Note 9: Capital allowances for the year have been calculated as £2,100.

Required -

(a) Compute Amal's taxable trading income for the year ended 30 September 2020.

(b) Explain how your calculation of taxable trading income would differ if, instead of the calculation being in respect of a sole trader, you were determining the taxable trading income for a limited company. (You are not required to perform any calculations).

Question 4 - (answer both parts (a) and (b)):

Abacus Limited has the following results for the 14 months to 31 December 2020.

	£	£
Adjusted trading profit before deduction of capital allowances		1,150,000
Capital allowance claimed:
Year to 31 October 2020		220,000
2 months to 30 December 2020		31,500
Chargeable gains:
Disposal on 16 March 2020	17,000
Disposal on 3 October 2020	24,300
Bank interest:
Received	3,500
Received	4,200
Dividends:
Received 1 November 2019	20,000
Received 1 November 2020	18,000
Gift Aid donations:
Paid 31 August 2020	12,000
Accrued to 31 December 2020	4,000

Accrued bank interest was £3,000 on 31 October 2019, £4,000 on 31 October 2020 and £1,000 on 31 December 2020.

Required -

(a) Compute the company's total corporation tax liability for the 14-month period ended 31 December 2020, stating when the tax is required to be paid.

(b) Appraise UK corporation tax with respect to Adam Smith's canon of efficiency.

Question 5 - "UK CFC legislation taxes income that is neither the income of a UK resident company nor sourced in the UK, therefore it is simply illegal"

Required - Critically discuss the above statement. Your discussion should include an explanation of what is meant by a CFC (controlled foreign company), the reasons behind the legislation for such companies and a conclusion as to whether it is appropriate for tax to be charged in this way. You may draw on examples from other countries to support your discussion.

Question 6 - (answer both parts (a) and (b)):

In the tax year 2020/21, Noah had the following income:

Employment income 98,000

Property income 10,000

Lottery winnings 250

Bank interest 3,000

UK Dividend income 3,300

Required -

(a) Prepare Noah's income tax computation, showing his income tax liability for the tax year 2020/21.

(b) Explain what is meant by fiscal drag and provide an example of fiscal drag from the UK tax system.

Question 7 - (answer both parts (a) and (b)):

Polo Ltd is registered for Value Added Tax (VAT) and sells clothing items to small local shops. The company's financial accountant is in the process of completing the VAT return for the quarter ending 31 December 2020. The following information relates to the quarter ending 31 December 2020:

(a) Sales invoices totalling £37,370 (VAT inclusive) were issued to customers for standard-rated sales.

(b) Sales invoices totalling £20,815 were issued to customers relating to zero-rated sales.

(d) Purchase invoices relating to zero-rated items totalled £12,850.

(e) The company purchased a new delivery van on 30 December 2020, which cost £8,900 (VAT inclusive at standard rate). The purchase invoice is dated 30 December 2020.

However, Polo Ltd did not pay the invoice until 10 January 2021.

Required -

(a) Calculate the amount of VAT payable by Polo Ltd for the quarter ending 31 December 2020.

(b) The company accountant is considering using the Annual Accounting VAT Scheme next year. Prepare a short report, advising the accountant of:

i. the conditions the company must satisfy to qualify for the Annual Accounting VAT scheme;

ii. the advantages and disadvantages of using the scheme; and

iii. how the company must calculate its VAT liability and when this must be paid to the tax authority.

Attachment:- International Taxation - Policy and Practice Assignment File.rar

Reference no: EM132770319

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