ADVANCED TAXATION

Double Taxation Agreements (DTAs)

Double Taxation Agreements (DTAs) fall under International Taxation; the determination of
tax on a person or business subject to the tax laws of different countries. Tax may be charged
on tax payers’ income twice if such tax payers are involved in business activities in two or
more countries or reside in one country and conduct business in another. Where the global
income of such business is taxed, tax reductions or foreign credits are provided for taxes paid
to other jurisdiction.

In Nigeria, a resident person (individual or company) is assessable to tax on the global

income. This simply means that the taxpayer is liable to tax on the income or profits BRAD
(BROUGHT INTO, RECEIVED IN, ACCRUING IN and DERIVED FROM Nigeria). It also
determines the extent of deductions that may be allowed for the purpose of computing an
individual’s chargeable income.
CHARGEABLE PERSON
Resident Individuals: an individual is said to be resident in Nigeria in an assessment year if:
(i) he is domiciled in Nigeria (ii) sojourns in Nigeria for 183days or more in a 12months
period; or (iii) serves as a diplomat or diplomatic agent in Nigeria.

Tax Liability: A resident individual is liable to tax on the basis of residence or where the
employment income is sourced (i) Employment income of the resident individual (ii) the
profit of trade, vocation or business. Generally, residence is the basis of taxing employment
income in Nigeria. When the taxpayer is regarded as resident in Nigeria, his employment
income is liable to Nigerian tax. However, for employment income not to be liable to tax in
Nigeria;

i. The employee must be resident for less than 6months in any 12-month period
ii. The employer of the person must not be resident in Nigeria
iii. The income of the person must be taxable in another count that has a double tax treaty with
Nigeria

Non-Resident Individual: this is a person who is not domiciled in Nigeria or who stays in
Nigeria for less than 183days but derives income or profits from Nigeria. He shall be liable to
tax under the following conditions:

(i) For earned incomes (Trade, business, profession & vocation): shall be liable to tax in Nigeria
in the hands of the non-resident to the extent of such income derived from Nigeria.
(ii) Unearned income (dividends, rental income, royalty, interest income): shall be liable to tax in
Nigeria in the hands of a non-resident to the extent of such income received or brought into
Nigeria.
(iii) For employment income, he shall be liable to tax when he becomes resident in Nigeria
regardless of where the employment duties are performed. Employment incomes also
become liable to tax if the activities or duties of the employment are wholly or partly carried
out in Nigeria.
Resident Vs Non-Resident Company
OLAYINKA IFAYEMI 1
 A company is resident in Nigeria if it is incorporated or registered in Nigeria. A non-resident
company is one that is not incorporated or registered in Nigeria but which derives income or
profits from Nigeria. Being a non-resident company does not confer tax exemption on it
provided its income is derived in Nigeria through:

1. Fixed Based or Permanent Establishment

2. A Dependent Agent;
3. From supervisory activity that lasts more than three months
4. Professional consultancy, management and technical services rendered in Nigeria
5. From a contract awarded to a Nigerian company but sub-contracted to a non-resident
company.
6. From a Turnkey project
7. Income derived by a non-resident company from investment such as dividend, interest, rent
and royalties. The WHT on these incomes are regarded as the final tax
SIGNIFICANT ECONOMIC PRESENCE
The Finance Act 2020 introduced expanded the conditions under which the business income
of a Non-resident company would be taxable in Nigeria. Under the new rules, an NRC will
be liable to tax in Nigeria if:

 They supply digital services or goods and profits can be attributable to the activities
 They have a significant economic presence in Nigeria

The concept of SEP ensures that companies with no physical presence in Nigeria can be
taxed based on the volume of their economic activities. The SEP primarily creates a taxable
presence for NRCs based on their digital/technological footprints in Nigeria. The Minister of
Finance is empowered to define what will constitute SEP in Nigeria and as such passed the
CIT (SEP) Order 2020, known as ‘The Order’

Description Conditions Remark

Digital Service 1. Activities  If gross turnover

Providers involving is in excess of
streaming or N25m in a given
downloading year from any or
services of a combination of
digital contents the activities
e.g., movies, listed
videos, e-books,  It uses a
music, apps, and Nigerian domain
games; name (.ng) or
2. Transmission of registers a
data collected website in
about Nigerian Nigeria or
users generated It has a
from users’ purposeful and
activities on sustained
websites or

OLAYINKA IFAYEMI 2
 mobile interaction with
applications; persons in
provision of Nigeria by
intermediation customizing its
services through platform to
digital platforms, target persons in
website or other
Nigeria e.g., by
online
reflecting prices
application that
link suppliers of
and customers in product/services
Nigeria in naira,
providing billing
options in naira

Non-Resident This includes  If it earns income For this category,

Companies that advertising or receives the Withholding
provide technical services, training payment from a Tax deducted by
services or the provision person resident the recipient of
of personnel, in Nigeria or the service is
professional,  A fixed base or
agent of a non- the final tax
management or
Nigerian
consultancy
company
services to
Nigerian
customers

An NRC will not be considered to have SEP where it makes payment to its employee under a
contract of employment or for teaching in an educational institution. SEP will also not be
applicable where payments are made by foreign based of a Nigerian company.

Dual Residence (Local Individual & company)

Where an individual has dual/multiple residence status, such person will be subject to tax in
Nigeria in the state where the individual normally resides; if he resides in more than one
place, he is subject to tax in the state where he has the principal place of residence.

The issue of dual residency does not arise for companies since the Federal government is
vested with the taxation of all companies.
International Dual Residence

There are varying definitions of Residence from country to country; thus, Nigerian tax
treaties (with other countries) govern the treatment of such cases and affected companies can
claim tax credit for the Nigerian tax in their home countries to avoid double taxation.
PARENT COMPANY - BRANCHES & SUBSIDIARIES

OLAYINKA IFAYEMI 3
The Tax laws of some countries where the parent company and branches are situated, the
income of the branches are exempted from tax. There is no such tax provision in Nigeria. A
Nigerian branch of a foreign company is treated as a corporate entity and its income
assessable to tax unless such branch is used solely for storage or display of goods and/or
collection of information.

A subsidiary is expected to be incorporated in Nigeria to operate as a separate legal entity

from the parent.
OVERSEAS BRANCH VS OVERSEAS SUBSIDIARY

The profit of an oversea branch of a Nigerian company is deemed to be derived in Nigeria

and is therefore fully liable to tax in Nigeria. Any foreign tax suffered is allowable in
determining the overseas profit. Also, assets used by the branch is eligible for capital
allowance claim in Nigeria. Losses can also be set off against profit in Nigeria provided the
losses are from the same source

The profit of an overseas subsidiary is not deemed to be derived in Nigeria and therefore not
liable to tax in Nigeria. Only dividends received from such subsidiary that will be considered
for tax purpose in Nigeria. Also, technical and management fees paid to the Nigerian
company by the overseas subsidiary will be subjected to tax in Nigeria.

FIXED BASE: the term ‘Fixed Base’ means that the place must be easily identifiable and must
possess some degree of permanence. It includes facilities such as a factory, an office, a
branch, a mine, gas or oil well; activities such as building, construction, assembly or
installation; and furnishing of services in connection with the activities mention above. It
excludes facilities solely for storage or display of goods or merchandize; and facilities
used for the collection of information. The profit from a fixed base (for a non-resident
company) shall be liable to tax in Nigeria.

A Turnkey Project is defined as a single contract involving survey, deliveries, installation or

construction. The profit from such project shall be wholly taxed in Nigeria as it is liable to tax
in Nigeria.

A non-resident company can have two types of agents in Nigeria – an independent agent or a
dependent agent. An independent agent is one who possesses independent status when he
acts on behalf of a non-resident company in the ordinary course of his business. An agent is
regarded as an independent agent when it deals on behalf of a non – resident in its ordinary
course of its own business. The implication of this arrangement is that the agent carries on its
own trade along with his function as an agent of the non – resident company. Therefore, if
the non – resident company stops trading in Nigeria, the independent agent is not materially
affected as it will continue in its own business.
A dependent agent, on the other hand, devotes his activities wholly or almost wholly on
behalf of the non – resident company. Where the dependent agent makes an isolated sale of
goods on behalf of the principal, such a profit may not necessarily be subjected to tax in
Nigeria. Where however, the sale of goods on behalf of the principal is on a regular basis,
then the agent is deemed to trade habitually in the goods and the profit derived therefore is
chargeable to tax in Nigeria.

OLAYINKA IFAYEMI 4
 DOUBLE TAXATION AGREEMENT

Commonwealth income tax relief is given in a situation that a company which has paid or is
liable to pay tax in Nigeria for any year of assessment on any part of its profits has also paid
or is liable to pay Commonwealth income tax for that year in respect of the same part of its
profit. The relief is used to reduce the tax paid or payable in Nigeria on the part of the
company’s profits which is liable to tax in Nigeria and in any country in the Commonwealth.
The Commonwealth income tax relief must be claimed not later than six years after the end
of that year.

However, the following taxpayers are can benefit from a tax treaty between Nigeria and
another country:

a. The taxpayer must be a resident of Nigeria

b. A resident of the treaty partner or
c. A resident of both Nigeria and the treaty partner

The following conditions must be present in order to take advantage of the concessions
provided by the Double Taxation Agreement:

a. The taxpayer is liable to tax in the treaty country of which he is a resident

b. The income in question is not exempted from tax in Nigeria
c. The tax for which that individual is seeking benefit is covered by the treaty
d. The benefit is not specifically excluded under the treaty
e. The benefit is claimed within the time stipulated by the treaty or domestic laws

A taxpayer, resident or non-resident may be denied treaty benefits if, based on facts and
circumstances, it is discovered that its residency of one of the treaty countries was principally
for the purpose of accessing that treaty benefit (treaty shopping) or if it is discovered that
after careful review of the case that one of the principal purposes of the arrangement of a
transaction or business is to take advantage of the treaty or abuse its provision (Principal
Purpose Test)

The following treaty benefits are available under DTA between Nigeria and other countries:

a. Relief from double taxation, in form of tax credits or deductions of foreign tax paid from tax
payable in Nigeria by a Nigerian resident in order to eliminate double taxation
b. Treaty tax rates to foreign airlines or shipping companies or exemption of their income from
tax
c. Treaty withholding tax rates for passive income or fees for technical service derived from
Nigeria by residents of a treaty partner
d. Access to Mutual Agreement Procedure (MAP) for dispute resolution: Whenever there is a
dispute between a resident taxpayer and the tax authority of either Nigeria or her treaty partner
regarding the interpretation or application of tax treaty provisions regarding the taxation of income of
that taxpayer, the DTA provides the taxpayer with access to an easy dispute resolution mechanism
through Mutual Agreement Procedure (MAP). The Competent Authority (CA) of Nigeria is required
to interact with the CAs of the other treaty country with a view to resolving disputes arising from the

OLAYINKA IFAYEMI 5
 interpretation or application of the tax treaty provisions through mutual agreement and avoiding
taxation which is not in accordance with the treaty
e. Non-discrimination in Taxation matters: By the operation of the Article on Non-Discrimination
in the DTAs, citizens or nationals of Nigeria should not be subjected in the other treaty country to any
taxation or any requirement connected therewith which is other or more burdensome than the taxation
and connected requirements to which citizens or nationals of that other treaty country are or may be
subjected to in the same circumstances, especially, with respect to residence rule. Likewise, citizens or
nationals of Nigeria’s treaty partners are entitled to tax treatments in Nigeria similar to that
applicable to Nigerians. Where a Nigerian has suffered discrimination in taxation matters in any of the
countries that has tax treaty with Nigeria, such Nigerian may apply to the CA of Nigeria (or the CA of
the Treaty Partner where the treaty so provides) for redress through the MAP.

Where there is agreement (TAX CREDIT)

Where a resident of Nigeria has paid foreign tax on an income derived from treaty partner of
Nigeria, Section 46 of CITA, 39 of PITA, 62 of PPTA or Section 41 of CGTA as the case may
be, allows for a credit relief against similar tax payable in Nigeria by that resident. The
amount of foreign tax paid is deductible from the tax payable in Nigeria on same income.

i. Any tax payable in a country under the agreement is to be allowed as a credit against the tax
payable in respect of the income being subjected to tax in Nigeria
ii. The credit is not allowed against tax for any year of assessment when the person entitled to it
is not resident in Nigeria for that year.
iii. The total amount of credit allowable in any one year shall not exceed the tax payable for that
year i.e., there is no refund against foreign tax
iv. Claim for a credit shall be made not later than two years after the end of the relevant tax year
v. Any dispute on the amount of credit claimable shall be subject to the objection and appeal
procedures.

QUESTION: Weredeydisguise Nigeria Limited, a Nigerian company, which commenced

business in June 2002. The company paid income tax of $7,500 and $21,000 in Belgium on its
taxable profits of $30,000 and $60,000 for 2015 and 2016 tax year respectively, with respect to
its branch, which qualifies as a permanent establishment in Belgium. The total profits of the
company in Nigeria in those respective years, based on its worldwide income, are
N60million and N80million. The tax rate in Nigeria is 30%, while Belgium imposes tax rate of
25% for income below $40,000 and 35% for above $40,000 income. Nigeria and Belgium have
a double taxation agreement.

Required: Compute the tax payable in Nigeria by the company for the relevant years of
assessment (Assume Exchange rate of N380 to $1 in both years)
Where there is no agreement

The rate of relief shall be as follows:

For Resident Company; (a) if the Commonwealth Tax Rate is less than ½ of the Nigerian Tax
Rate, the rate of relief shall be the Commonwealth Tax Rate (CTR < ½ NTR; use CTR)

OLAYINKA IFAYEMI 6
 (b) if the Commonwealth Tax Rate is greater than ½ of the Nigerian Tax Rate, the rate of
relief shall be ½ Nigerian Tax rate (CTR > ½ NTR; use ½ NTR)

For Non-Resident Company: (a) if the Commonwealth Tax Rate is less than the Nigerian Tax
Rate, the rate of relief shall be ½ of the Commonwealth Tax Rate (CTR<NTR; use ½ CTR)

(b) if the Commonwealth Tax Rate exceeds the Nigerian Tax Rate, the rate of relief shall be
the amount by which the Nigerian Tax Rate exceeds ½ of the Commonwealth Tax rate (CTR
> NTR; then NTR – ½ CTR)

It is possible the tax rates (Nigerian and/or Commonwealth) are not provided or just one of
them may be provided; where this occurs, the rates would be determined as follows:

Nigerian Tax Rate = Tax paid/payable x 100

Total/Taxable profit
Commonwealth Tax Rate = Foreign Tax Paid x 100
Total/Taxable profit
Procedures for computing Tax payable: (For Companies)

1. Determine the global income (i.e., income derived from abroad plus Nigerian income)
2. Deduct capital allowance where necessary
3. Determine the taxable profit
4. Determine the tax payable by applying the NTR on the taxable profit
5. Compute the gross foreign income; calculate the Commonwealth Tax Rate by dividing the
foreign tax paid by the gross amount of the foreign income
6. Compare the CTR with the NTR according to the rule to determine the rate of relief
7. Compute the Double taxation relief amount by applying rate of relief in (5) above on the
Taxable profit
8. The relief amount in (6) is then deducted from the total liability computed in (4)
For Individuals:

It should be noted that the PITA does not cover the situation where there is no DTA for
individual (whether resident or non-resident individual). Therefore, the rule for company
above does not cover individual taxpayer. Hence, DTR shall be the lower of foreign tax paid
on foreign income and Nigerian tax payable on the foreign income (i.e. lower of Nigerian tax
rate and foreign tax rate on the foreign income).

1. Determine the global income

2. Deduct the Consolidated Relief Allowance (as well as other tax-exempt items)
3. Determine the taxable profit
4. Determine the tax payable by applying the Personal Income Tax schedule
5. Determine the Nigerian Tax Rate by dividing the total tax liability by the taxable profit
6. Compute the gross foreign income; calculate the Commonwealth Tax Rate by dividing the
foreign tax paid by the gross amount of the foreign income
7. Compare the CTR with the NTR according to the rule to determine the rate of relief
8. Compute the Double taxation relief amount by applying rate of relief in (7) above on the
Assessable income

OLAYINKA IFAYEMI 7
 9. The relief amount in (8) is then deducted from the total liability computed in (4)

QUESTION 1: Bayo International Ltd runs a business both in Nigeria and Liberia. The
company’s operating results for the year ended 31st December 2003 were as follows:

N
Income from Nigeria 25,000,000
Income from Liberia 11,000,000
Total income 36,000,000
Less: overheads 20,000,000
Net profit 16,000,000

a. Included in the overheads are:

i. Depreciation – Nigeria N2,250,000
ii. Depreciation – Liberia N375,000
iii. Donations to club in Nigeria N125,000
iv. Foreign tax suffered N2,100,000
b. Profits attributable to Liberia business N2,575,000
c. Capital allowances agreed with tax officials for Nigeria and Liberia business were N1,770,000
and N725,000 respectively
d. Assume the company is a wholly Nigerian company

Required: compute the tax liabilities on the total income, stating clearly the doble taxation
relief applicable to the company.

INCOMES EXEMPTED FROM DOUBLE TAXATION RELIEF

1. The remuneration of a professor or a teacher who is resident for not more than two years in
the country, for the purpose of teaching.
2. Government pensions, unless the recipient is ordinarily resident in Nigeria
3. Aircraft and shipping profits
4. Dividends paid by a UK company to a Nigerian resident who has no PE in the UK
5. Payments to a student or apprentice during his full-time education or training in Nigeria
6. The income of a resident in the UK is exempted provided:
a. He is not in Nigeria for at least 183 days
b. The services are rendered for UK employer

QUESTION 2: Konkojabele Nigeria limited manufactures insecticide and is based in Ijagun,

Ogun State. The company recently established a plant in Senegal, West Africa on 1 st January
2014. The results of the business operations in Nigeria and Senegal for the year ended 31st
December 2017, are as follows:
Nigeria Senegal Total
N’000 N’000 N’000
Revenue 34,750 19,480 54,230
Other income 1,730 780 2,510
36,480 20,260 56,740
Less: cost of sales 12,400 6,300 18,700
Gross profit 24,080 13,960 38,040

OLAYINKA IFAYEMI 8
 Less: other expenses
Salaries 5,000 2,500 7,500
Bad debts 1,600 800 2,400
Entertainment 800 130 930
Legal expenses 1,320 - 1,320
Travelling expenses 1,250 740 1,990
Repairs and renewals 1,465 900 2,365
Bank charges 345 116 461
Audit fees 1,000 400 1,400
Depreciation of assets 1,840 670 2,510
Foreign exchange loss provision - 1,400 1,400
Miscellaneous expenses 930 120 1,050
Foreign tax paid - 1,730 1,730
Net profit 8,530 4,454 12,984

Additional information:
(1) For the Nigerian operation, bad debts include N700,000 general provision
(2) Legal expenses consist of:
i. Tax dispute N400,000
ii. Defence of title to land N330,000
iii. Debt recovery N250,000
iv. Others (allowable) N340,000
(3) Capital allowances for the year as agreed with the FIRS are as follows:

Nigeria N1,650,000
Senegal 550,000

Required: (a) provide professional advice on the status and tax implication of the company’s
operation in Senegal (b) draft a report showing the tax liability of the company for the
relevant assessment year bearing in mind the reliefs available to the company under the
CITA 2004 (as amended)

QUESTION 3: What are the exceptions to the rule on the taxation of income of a branch of a
non-resident company?

a) Discuss the treatment of dual residency for an individual and a company

b) Distinguish between a resident and non-resident individual
The Company Income Tax Act provides three (3) tests for determining whether the profit of a
non-resident company from any trade or business shall be deemed to be derived from or
accrue in Nigeria.

Required: (a) List the Three (3) tests. (3 Marks)

(b) Explain in details the meaning and implications of each test on liability to tax of a non-
resident company

OLAYINKA IFAYEMI 9
QUESTION 4: Engineer Kole Ahmed manages a wholly owned Nigerian engineering outfit -
Oduifa Construction Company Limited. The company is based at Ikeja and was incorporated
in February 2010. Given the challenging economic environment in Nigeria and inconsistent
government policies, the company’s management embarked on foreign diversification of
income. They sourced and secured some contracts in the United Kingdom where they have
operational activities in London. Extracts from the Statement of Profit or Loss for the year
ended December 31, 2015, for Lagos and London operations, are as follows:

Lagos London (Translated in Total (N)

(N) Naira)
Revenue 68,000,00 70,200,000 138,200,000
0
Direct (43,410,0 (44,050,000) (87,460,000)
expenses 00)
Gross 24,590,00 26,150,000 50,740,000
profit 0
Deduct: administrative expenses:
Staff 1,200,000 1,440,000 2,640,000
salaries
Rent and 840,000 960,000 1,800,000
rates
Motor 136,000 148,000 284,000
vehicle
expenses
Repairs 92,000 106,500 198,500
and
maintena
nce
Utilities – 76,840 81,000 157,840
electricity
, gas,
water etc
Business 55,000 60,000 115,000
insurance
s
Miscellan 74,000 61,000 135,000
eous
expenses
Audit 300,000 400,000 700,000
fees
Bank 341,000 425,000 766,000
charges
and
commissi
ons
Foreign - 4,260,000 4,260,000

OLAYINKA IFAYEMI 10
 taxes
suffered
Depreciat 860,000 920,000 1,780,000
ion
Net Profit 20,615,16 17,288,500 37,903,660
0

N725,000 was agreed with the Revenue as Capital allowances.

You are required to:

Compute the final tax liability of the company for the relevant assessment year.

QUESTION 5: Dr. Kwabena, a University Professor in Nigeria, earns a basic salary of

N750,000 monthly, an allowance of N380,000 as well as transport and other Benefit in Kind
worth N500,000.

In 2017, she was appointed by the University of South Africa in London as a visiting
Professor to lecture on Integrated Accounting Technology. The University of South Africa in
London has agreed to pay her fares to and fro twice per week. The remuneration as agreed is
£840,000 per annum before deducting income tax in the UK. During the year, he was paid a
net income of £640,000.

Exchange rate for both currencies is N570/£1

Required: compute the tax liability of Dr. Kwabena in Nigeria for the relevant year of
assessment.

QUESTION 6: Mr. Bayonle, resident in Nigeria has the following financial information:

Year ended 31/12/2007 31/12/2008 31/12/2009

N N N
Salary 800,000 800,000 800,000
Trading income 650,000 1,200,000 1,350,000
Dividend received (Net) 90,000 100,000 70,000
PAYE paid 4,000 4,000 4,500
Net foreign income 31/12/2008 $65,000

Foreign tax paid 31/12/2008 $12,000

Capital allowance N150,000
Exchange rate $1 = N365

Required: Compute the balance of tax payable for 2008 assessment year

QUESTION 7: Bamiro Brothers Nigeria Plc. Is a manufacturer of pharmaceutical products

and household utensils? It has been operating business in Nigeria for some years with an
agency in Kenya where its products were highly patronized. The trading results which were
based on the business operating in Nigeria and Kenya for the year ended 30th September,
2014 revealed.
Kenya Nigeria Total

OLAYINKA IFAYEMI 11
 N N N
Turnover 12,000,000 21,000,000 33,000,000
Other income 500,000 1,200,000 1,700,000
12,500,000 22,200,000 34,700,000
Less: Cost of sales 4,875,000 8,658,000 13,533,000
Gross Profit 7,625,000 13,542,000 21,167,000

Less: Expenses:
Rent 516,000 1,548,000 2,064,000
Consultancy services 138,000 414,000 552,000
Depreciation 600,000 1,800,000 2,400,000
Bad Debts written off 380,000 850,000 1,230,000
Entertainment and traveling expenses 584,000 1,750,000 2,334,000
Property rates, tariffs duties 220,000 660,000 880,000
Foreign exchanges loss provision 990,000 - 990,000
Sales commissions 1,250,000 1,526,000 2,776,000
Repairs and renewals 860,000 1,580,000 2,440,000
Other general expenses 1,213,000 2,150,000 3,363,000
Net Profit 756,000 910,000 1,666,000
Other
Information:
i. The capital allowances for the year as agreed by the Inland Revenue were:
Lagos Kenya
Initial 152,000 -
Annual 98,000 460,000

ii. The company had paid to Kenyan tax authority the sum of N250,000 as tax onincome
derived from Kenya.
iii. Foreign exchange loss provision arose as a result of fluctuation in converted cashbalance in
a bank in Kenya.

Required: Compute the tax liability of the company on the total profits for the tax year
bearing inmind the double tax relief.
QUESTION 8: FIRST INTERPARES NIGERIA LIMITED has its registered office in Esa-Oke,
Osun State. The company trades in hides of cattle, skin of various reptiles and horns. Some of
the items were sold to the local industries and the rest are exported to its branch in London
for processing into objects of arts for sale. The company owns a large shop which sells these
articles in London. Net proceeds are annually remitted to Nigeria after deductions of
necessary expenses and all taxes paid to the British Governments. The Income Statements for
the year ended 31st September, 2014 for the business operations carried out in the two
countries are presented below:
Nigeria Britain
N N
Sales Proceeds 340,000 600,000

The proceeds from Britain were arrived at after deduction of local sales tax and conversion
into Naira with the appropriate rate.

Less: Cost raw materials 40,000 50,000

Salaries and Wages 120,000 90,000
General Expenses 80,000 60,000

OLAYINKA IFAYEMI 12
 Share of Head Office Administration 20,000 10,000
Income Tax paid in Britain 160,000
Net Profit 80,000 230,000

Additional Information:
1. The capital allowances claim for the year in respect of fixtures and fittings in Nigeria office is
agreed at N14,000.
2. The entire amount in General Expenses is allowable for tax purposes.
3. Nigerian tax rate should be taken as 30% while British tax rate is 40% for 2015 year of
assessment.

You are required to:

a) Compute the double tax relief available to the Nigerian company in respect of tax paid on
income broughtinto Nigeria from Britain.
b) Compute the net tax due to be settled by the company after taking into consideration the relief
in (a) above.

OLAYINKA IFAYEMI 13