D22 ATX CYP

QUESTION 1

You should assume that today’s date is 1 December 2022.

One of the partners in your firm has forwarded to you an extract from an email from Helen, the
finance manager of XLS Ltd, a client of your firm, asking for tax advice. He has also sent you notes
from the client’s permanent file with background details.

The following exhibits, available on the left-hand side of the screen, provide information relevant to
the question:

1. Email extract from Helen

2. Projected statement of profit or loss for 2022
3. Permanent file notes

This information should be used to answer the question requirements within your chosen
response option(s).
Exhibit 1
Exhibit 2
Exhibit 3
Requirements

You should assume that today’s date is 1 December 2022.

Prepare a memorandum for your tax partner in which you:

(a) Estimate the corporation tax payable by XLS Ltd for 2022, explaining your calculations
and stating any assumptions made, where necessary.
(17 marks)

(b) Advise XLS Ltd on when the tax due should be paid in order to avoid interest and
penalties.
(4 marks)

(c) Make special reference in your memorandum to the general provisions of the Cyprus
legislation regarding arm’s length transactions as they would apply to the loan from XLS Ltd
to XSUB1 Ltd and make the necessary adjustments in your computations.
(7 marks)

(d) Explain, without making any computations, the provisions of the Cyprus legislation
regarding notional interest deduction and whether XSUB2 Ltd can benefit from them.
(3 marks)

Professional marks will be awarded for the format and presentation of the memorandum and the
clarity and effectiveness with which the information is communicated.
(4 marks)
QUESTION 2

You should assume that today’s date is 1 December 2022.

You have received an email from Paul, a client of your firm, asking for tax advice. Paul is aged 35
and has always been Cyprus tax resident and domiciled.

The following exhibit, available on the left-hand side of the screen, provides information relevant to
the question:

1. Email from Paul

This information should be used to answer the question requirements within your chosen
response option(s).

Exhibit 1
Requirements

You should assume that today’s date is 1 December 2022.

Explain the Cyprus tax implications of:

(a) Option A, where Paul will hold the shares personally. You should explain any additional
responsibilities Paul will have in respect of reporting his income from the portfolio and the
payment of any additional taxes due.
(13 marks)

(b) Option B, where the shares are held by Paul’s Cyprus tax resident company.
(7 marks)

(c) Option C, where the shares are held by Paul’s company in Farland. You should address
the principles used to determine when a company is considered tax resident in Cyprus.
(5 marks)

Note: You should also explain, generally, how the wide network of Cyprus double tax treaties may
assist in reducing the tax implications of each option.
QUESTION 3

You should assume that today’s date is 1 December 2022.

Vida Ltd, a long-standing client of your firm, is registered and tax resident in Cyprus. The company
is a very profitable distributor of tools and is registered for value added tax (VAT) in Cyprus. Chloe,
the finance director of Vida Ltd, has written an email asking for your advice on the correct tax
treatment of a number of transactions.

The following exhibit, available on the left-hand side of the screen, provides information relevant to
the question:

1. Email extract from Chloe

This information should be used to answer the question requirements within your chosen
response option(s).
Exhibit 1
Requirements

Regarding Chloe’s email, please explain the following:

(a) In respect of the invoice queries (item(i)), whether any taxes should have been deducted
at source from the payment to Mr Chai. Please also explain the correct VAT treatment of
both Mr. Chai’s invoice and the advertising invoice and advise how any errors can be
corrected in this case.
(7 marks)

(b) In respect of the sale of the drill (item (ii)), when Vida Ltd should account
for, and pay for, the associated VAT on the transaction.
(8 marks)

(c) In respect of mail order sales (item (iii)), whether Vida Ltd’s current VAT
treatment of these is correct and if not correct, how they should be treating
these.
(5 marks)

Note:
1. Tool sales are taxable at the standard rate of VAT.
2. You are not required to address VAT penalties in your answers.
QUESTION 4

You should assume that today’s date is 1 December 2022.

Marios is employed as a software engineer for an information consultancy firm in Limassol. Marios
has always been tax resident and domiciled in Cyprus.

The following exhibits, available on the left-hand side of the screen, provide information relevant to
the question:

1. Email extract from Marios

2. Projected 2023 rental income and expenses

This information should be used to answer the question requirements within your chosen
response option(s).

Exhibit 1
Exhibit 2

Requirements

You should assume that today’s date is 1 December 2022.

(a) Explain how the rental income from the property in Farland will affect Marios tax
obligations from 2023 onwards.

Note:
1. You are not required to make a detailed computation of Marios’ tax liabilities.
2. You should assume that Farland does not have a double tax treaty with Cyprus.
(10 marks)

(b) Explain whether you agree with the employer statement that there will be no cost to
Marios in relation to the car.

Note: You should provide a detailed computation of the car benefit in kind.
(3 marks)

(c) Advise Marios whether it would be beneficial from a tax point of view to transfer the bank
deposit to Cyprus.

Note:
1. You should assume that the tax deducted at source in Farland is 25%.
2. You should assume that Farland does not have a double tax treaty with Cyprus.
(3 marks)

(d) Explain in what circumstances the tax department can raise an assessment and why
they may have done so for Marios in relation to 2019. You should also explain the time limits
for raising an assessment and the options available to Marios regarding the assessment he
received.
(4 marks)