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EXAMINATION PAPER FOR COMPLETION ONLINE

Session: 2020/21

Faculty: Business and Law

Programme/Course:

Level: 6

Module Title and Code: ACFI3313 International Business Taxation

Date: Thursday 26th August 2021

Duration: 3 hours

The examination window is from 8am-6pm UK time.

For the duration of the examination see ‘duration’. Your time starts when you begin the examination.

You are reminded that the examination must be completed and submitted by 6pm UK time.

Statement of Own Work

By submitting your examination answer, you are confirming that your effort is an individual effort,
entirely your own work and that you have not engaged in bad academic practice and/or an academic
offence.   

All students should note that it is your responsibility to upload your answer sheet through the Turnitin
portal within the duration. Students who fail to submit through Turnitin, or within the exam duration,
will be awarded 0% for this assessment.

Student Guidance on Taking Remote Examinations

Students are reminded that guidance on taking online examinations is available on the Examinations
web page.

If you find what you perceive to be an error in any of the questions please state your assumptions and
continue with your answer.

Section A – COMPULSORY 50 marks.

Section B – Answer TWO questions ONLY. All questions carry 25 marks.
Tax tables are attached at the back of this paper.

Where a word count is listed against any discursive question part, please note that this is for
guidance only and no penalty will be given for exceeding it.

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SECTION A
All parts of this section are COMPULSORY and TOTAL 50 MARKS.

Question 1
Teas Plc is a UK incorporated manufacturer of beverages. The Teas
group consists of several wholly owned trading subsidiary companies,
both in the UK and overseas.

Extracts from the client files for the Teas Plc group of companies:
Teas Grey Assam Inc Earl Green Ltd
Plc Ltd Ltd
Shareholders Holding Teas Plc Teas Plc Teas Ltd Earl Ltd
company (100%) (100%) (100%) (70%)

Country of UK UK Kenya UK UK
Residence
Disposal February
date 2020
Capital loss - - - £ £
b/f (240,000) (250,000)
Current Year
Trade Loss - £(10,000) - - £(50,000)

The group policy on loss relief is to allow losses to be surrendered to

Tea Plc wherever possible. The profit and loss account of Teas Plc for
the year ended 31 March 2020 showed a profit of £865,000 after
accounting for the following items:

i. Professional fees incurred during the year included an amount of

£50,000 in respect of due diligence on a proposed capital
acquisition in Kenya. The acquisition did not go ahead. In addition,
£75,000 was spent on lobbying the Kenyan governments in
relation to trade restrictions on exports made by the Teas group.

ii. Debenture interest payable of £150,000 was accrued in respect of

a loan to acquire the shareholdings for investment purposes.

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iii. Foreign exchange losses in the amount of £30,000 (this was in

respect of an overseas loan taken out to fund share acquisitions).

iv. The company received a dividend of £73,000 from the Kenyan

subsidiary, Assam Inc, in July 2019. The profits from which the
dividend was paid suffered tax at a rate of 27% but no withholding
tax was imposed on the payment.

v. The company received rental income of £52,800 (net of Indian

withholding tax of 35%) from overseas commercial property.

vi. In December 2019 Teas acquired goods costing £84,000 from

Assam Inc at a mark-up of 40%. The normal mark-up charged to
other customers is 20%.

In addition to the above Teas Plc has not yet accounted for the following
capital transactions:

The principal manufacturing building was sold to an unconnected party

creating a gain of £180,000. Teas Plc also sold two shareholdings as
follows:

 Assam Inc, a Kenyan tea distributor in which Teas Plc had a

100% shareholding, was sold in February 2020 for £180,000.
The shares had been acquired for £700,000 in April 2004 and
the indexed cost at February 2020 was £732,000.

 India Ltd, a tea specialist in which Teas Plc owned a 5%

shareholding was sold in December 2019 for £380,000. The 5%
holding had been acquired for £300,000 in May 2010 and the
indexed cost at December 2019 was £321,000.

VAT issues
Teas Plc sells standard rated products in the UK and Earl Ltd exports to
America. The directors have enquired as to how a group VAT election
would work and whether it is worth the Teas group making such an
election.

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Future Expansion
Next year Teas Plc is hoping to expand to the country of Utopia which
has a 15% corporation tax rate They will open a service company and
will employ 100 staff but will not be purchasing any capital assets. The
board are forecasting a profit of £400,000 per annum.

A UK director, Rajina Abdool, will be sent to Utopia to oversee the

expansion for a period of 18 months. Whilst overseas she will rent out
her UK home. The posting will either start on 1 June 2021 or be delayed
till 1 December 2021.

Rajina will be paid a bonus of £100,000 by Teas Plc after leaving the UK
as a reward for going on the secondment. The bonus will be paid in the
first month of the secondment to her UK bank account whilst her salary
on secondment will be paid overseas.

You are required to write a report for Teas Plc’s board of directors
covering the following areas for the group in respect of year ended
31 March 2020 and the future expansion.

a) Calculate the adjusted trading profit for tax purposes for Tea Plc.
(7 marks)

b) Explain the tax treatment of the capital transactions and outline the
criteria used to decide which company within the group to allow
any gains arising to become chargeable in. (suggested word count
140 words)
(7 marks)

c) Calculate the total taxable profit chargeable to UK corporation tax

in Teas Plc and the tax payable on this profit, clearly explaining the
due dates and any relevant loss relief claims made by the group.
(13 marks)

d) Explain the benefit of making a group VAT election, how the

election is made and whether the Teas group should consider
such an election. (suggested word count 140 words)
(7 marks)

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e) Briefly explain whether the future expansion should take place via
a branch or subsidiary by considering the advantages of each
method of expansion. (suggested word count 120 words)
(6 marks)

f) Outline the tax implications of delaying Rajina’s secondment and

explain how the salary and bonus will be treated for each of the
two posting start dates. (suggested word count 140 words)
(7 marks)

Marks will be allocated for the presentation and style of your response.
(3 marks)

TOTAL FOR SECTION A - 50 MARKS

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SECTION B
Answer any TWO questions
Question 2
The group structure of the Eater Ltd group for year ended 31 March
2020 is as shown below, all of the companies are UK resident trading
companies:
Eater Ltd

65% 80% 90%

Pasta Ltd Sugar Ltd Milk Ltd

70% 80%
Rice Ltd Pie Ltd

Results for the year ended 31 March 2020 are as follows:

Company Eater Pasta Sugar Milk Rice Pie

Ltd Ltd Ltd Ltd Ltd Ltd
£’000 £’000 £’000 £’000 £’000 £’000
Trading profit 430 240 440 145 530 210

Chargeable gain 0 110 0 85 90 120

(notes 1 & 2)

Taxable total profits 430 350 440 230 620 330

Notes:
1. On 2 June 2019, Sugar Ltd sold the Pudding building to an
unconnected company, resulting in a capital loss of £80,000. This
loss is not reflected in the figures above.
2. Rollover relief is not available in respect of any of the chargeable
gains.

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In addition, Eater Ltd is planning to purchase 40% of the ordinary share
capital of Logan Inc in June 2020.

Logan Inc was incorporated in Erewhon on 1 January 2020 where the

corporate tax rate is currently 10%. The remaining 60% shareholding will
be retained equally by the two individuals that founded the company;
Joan Kemp, a UK resident, and Silvia Depardiou a resident of Erewhon.
On incorporation Joan and Silvia each owned a 50% holding in Logan
Inc.

You are required to:

Write a memorandum to the board of directors of Eater Ltd addressing
the following matters:

a) Clarify, with supporting explanations, those companies to which

the capital loss on the sale of the Pudding building could be
transferred, such that the group’s cash flow position would be
improved. (suggested word count 160 words)

(8 marks)

b) In respect of the proposed purchase of the shares of Logan Inc

explain whether Logan Inc will be a controlled foreign company
(CFC) following the purchase. (suggested word count 80 words)
(4 marks)

c) Explain how any CFC charge in respect of Logan Inc would be

calculated and outline the 12-month exempt period exemption that
may be available. (suggested word count 100 words)
(5 marks)

d) Outline the capital gains tax implications of any future sale of the
Logan Inc shares by Eater Ltd. (suggested word count 120 words)
(6 marks)

There will be marks allocated for the presentation of your response.

(2 marks)

Total 25 marks

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Question 3
You are the tax adviser of a multi-national company Broom Plc. The
managing director, Ravina Patel, has asked you to review the tax affairs
of three employees. The details of each employee are as follows:

Mark Gruffalo:
Mark has always been UK resident and domiciled. Broom Plc is sending
Mark overseas to work in Genovia for 15 months. The posting is due to
start on 1 September 2021, although it could be delayed and would then
commence on 1 April 2022. Broom Plc will pay for his accommodation
overseas and will reimburse any travel expenses for his family if they
visit him during his stay overseas.

Philip Wilkins:
Philip is domiciled in Freedonia and has always lived there until 31
March 2019 when he was seconded to Broom Plc. He returned to
Freedonia on 30 June 2020.

Broom Plc paid Philip £120,000 per annum and in addition he received
£5,000 of dividend income from Broom Plc shares. He continued to carry
out some duties of employment in Freedonia for which he was paid an
additional £10,000 per annum. He also received interest of £1,000 from
a bank account in Freedonia each year in April. Neither of the amounts
paid in Freedonia are remitted to the UK.

Charlotte Webb:
Charlotte is a UK resident director of Broom Plc. During the tax year
2019/20 Charlotte received the following income:

£
Salary from Broom Plc 90,000
Broom Plc dividend income 10,000
Overseas property business income (net) 11,200

The overseas property business income suffered withholding at 30%

before being paid to Charlotte.

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You are required to:

Write a memorandum to the managing director addressing the following

matters:

a) Advise Mark of the UK income tax implications of his employment

overseas and the tax treatment (if any) of the reimbursed travel
expenses. (suggested word count 160 words)
(8 marks)

b) Explain how Philip will be taxed in the UK on his earnings and

assuming he makes any beneficial elections calculate his UK tax
liability for 2019/20. (suggested word count 160 words)
(8 marks)

c) Calculate the UK income tax liability after double tax relief for
Charlotte for the tax year 2019/20.
(7 marks)

There will be marks allocated for the presentation of your response.

(2 marks)

Total 25 marks

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Question 4
You act as the tax advisor to a multi-national group of trading
companies, the Valix Plc group.

The chairman of the UK holding company, Mr Bhandari, has asked for

your advice on the following matters:

You are required to:

Prepare a memorandum for the chairman covering the following issues:

a) Clarify the current size of UKs “sustainable deficit” and discuss

whether the UKs current fiscal position (debt and deficit) is
sustainable. (suggested word count 160 words)
(8 marks)

b) Discuss the difference between aggressive tax avoidance and tax

evasion providing examples of each from a corporate tax
perspective. (suggested word count 160 words)
(8 marks)

c) Discuss whether the UK is a tax haven and what the advantages of

being a tax haven are. (suggested word count 140 words)
(7 marks)

There will be marks allocated for the presentation and style of your
response.
(2 marks)

Total 25 marks

TOTAL FOR SECTION B - 50 MARKS

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Tax Rates and Allowances 2019/20
Income Tax
Main Personal Allowances £

Personal allowance 12,500

Income limit for personal allowance (Note 1) 100,000
Marriage allowance (Note 2) 1,250

Note 1: When income exceeds the limit a clawback applies reducing the personal
allowance by £1 for every £2 above the limit.

Note 2: Spouses/civil partners are able to transfer £1,250 of their unused personal
allowance to their partner if both are basic rate taxpayers.

Tax Rates and Taxable Bands

Normal rate Dividend
rate
Basic rate £0 - £37,500 20 7.5

Higher rate £37,501 - £150,000 40 32.5

Additional rate Over £150,000 45 38.1

Note 3: A personal savings allowance applies at a 0% tax rate, applied after the
personal allowance has been applied as follows:
£
Basic rate taxpayers 1,000
Higher rate taxpayers 500
Additional rate taxpayers Nil

Note 4: The first £2,000 of dividend income is taxed at 0% for all taxpayers.

Non Domicile Remittance Basis tax charge

UK residence in at least 7 of the last 9 tax years £30,000
UK residence in at least 12 of the last 14 tax years £60,000
UK residence in at least 15 of the last 20 tax years Nil

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Residence Status
Days in UK Previously resident Not previously resident

Less than 16 Automatically not resident Automatically not resident

16 to 45 Resident if 4 UK ties (or more) Automatically not resident
46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties
91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more)
121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more)
183 or more Automatically resident Automatically resident

Relevant to Employees
Authorised Mileage Allowances
When an employee has business usage of their own car
Up to 10,000 miles
Over 10,000 miles 25p

Car Benefit Percentage

0 – 50 g/km
51 – 75 g/km
76 – 94 g/km
95g/km (the base level of emissions)
Each additional 5 g/km above the base level
Diesel additional surcharge
Maximum rate

Car Fuel Benefit

The base figure for calculating car fuel benefits £24,100

Capital Gains Tax

Annual exemption £12,000

Standard rate of tax (assets other than residential property) 10%

Higher rate of tax (assets other than residential property) 20%
Standard rate of tax on residential property 18%
Higher rate of tax on residential property 28%

Entrepreneurs’ relief:
For trading businesses and companies held for at least one year
Limit of gains £10,000,000
10%

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Rate of tax

National Insurance (not contracted-out rates)

Primary %
Class 1 employees £0 - £8,632 per year Nil
Above £8,632 – £50,000 per year 12.0
Above £50,000 per year 2.0
Secondary
Class 1 employer £0 - £8,632 per year Nil
Above £8,632 per year 13.8

Class 1A employer On benefits in kind 13.8

Sole traders

Class 2 Paid weekly If earnings are above the small £3

profits threshold of £6,365 pa

Class 4 £0 - £8,632 per year Nil

Above £8,632 - £50,000 per year 9.0
Above £50,000 per year 2.0

Corporation Tax Rates

Profits Diverted Profits

Financial Year 2019 - 2017 19% 25%

Financial Year 2020 20% 25%
Profit Threshold for quarterly instalments £1,500,000

Capital Allowances
2020
Plant and Machinery
Main pool 18
Special rate pool 8
Energy & water efficient equipment 100

Motor Cars
C02 emissions up to 50 grams per kilometre 100% 100%
C02 emissions over 50 grams up to 110 grams per kilometre 18
C02 emissions over 110 grams per kilometre 6

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Annual Investment allowance

Rate of allowance 100
Expenditure limit (£200,000 pre 01.01.2019) £1

Value Added Tax

Registration limit – annual turnover £85,000

Deregistration limit – annual turnover £83,000

Standard rate of VAT 20%

Rates of Interest
Official rate of interest for benefits in kind 2.50%
Rate of interest on underpaid tax 3.25%
Rate of interest on overpaid tax 0.50%

Supplementary Instructions
1. You should assume that the tax rates and allowances for the tax year 2019/20
will continue to apply for the foreseeable future unless you are instructed
otherwise.
2. Calculations and workings need only be made to the nearest £.
3. All apportionments should be made to the nearest month.

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