Question 3

You should assume that today's date is 1 March 2024.

The finance director of Moro Ltd requires advice on the corporation tax implications of:

-making an election to exempt the profits of overseas permanent establishment (Pes);

-incorporating an overseas PE; and

-selling a warehouse and shares in a subsidiary company.

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

Exhibit 1. Moro Ltd

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

Moro Ltd:

-Is a UK tax resident unquoted trading company which prepares accounts to 31 March each year

-Has had annual taxable total profits in the region of £800, 000 for many years and this will

continue in the foreseeable future.

-Has owned 100% of the ordinary shares in Lluc Ltd, a UK tax resident trading company

since 1 April 2018

Overseas permanent establishments (PEs):

-Moro Ltd also operates via a number of recently established permanent establishments (PEs) in
different overseas countries

-All of these PEs have been/will be lossmaking up to and including the year ending 31 March

2024

-One of these PEs located in the country of Arta, will start generating taxable profits of in the year
ending 31 March located 2025.

-Moro Ltd has not made an election to exempt the profits of overseas PEs from UK corporation

tax.

PE in Arta - trade and assets:

-Moro Ltd commenced to trade via this PE in Arta on 1 May 2022.

-On the same date, Moro Ltd acquired an office building in Arta for £140,000, and second

hand equipment for £22,000

-The office building was originally constructed in 2012.

PE in Arta - potential incorporation on 1 April 2024

-Moro Ltd is considering transferring the trade and assets of the PE in Arta to a newly

established subsidiary company which will be tax resident in Arta.

-On 1 April 2024, the office building and equipment will be valued at £ 133,000 and £8,000
respectively

-The tax written down value of Moro Ltd's main pool will be £nil on that date

-There will be no further additions to this pool in the year ending 31 March 2025

-The newly-established subsidiary company would be wholly owned by Moro Ltd.

-All of the after-tax profits would be distributed as a dividend on 31 march each year

The tax system in Arta:

-The rate of corporation tax in Arta is 30%.

-There is no double tax treaty between the UK and Arta

Sale of warehouse:

-Moro Ltd sold warehouse to an unconnected company for £ 95,000 on 1 February 2024

-Moro Ltd acquired this warehouse from Lluc Ltd on 1 March 2021 when its market value was
£90,000.

-Lluc Ltd had acquired the warehouse for £ 78000 on 1April 2019

Sale of shares in Lluc Ltd:

-On 1 May 2024, Moro Ltd will sell 20% of the ordinary shares in Lluc Ltd to an unconnected company

-the cost of the shares to be sold is £ 35,000 and their market value on 1 may 2024 will be £ 51,000

You should assume that today's date is 1 March 2024

(a) On the assumption that Moro Ltd DOES NOT incorporate the permanent establishment(PE) in
Arta on 1st April 2024, explain why it is not currently advantageous for Moro Ltd to elect to exempt
the profits of its oversees PEs from UK corporation tax.
(b) On the assumption that Moro Ltd DOES incorporate the PE in Arta on 1 April 2024:

i) Explain, with supporting calculations, the UK corporation tax consequences or this incorporation
for Moro Ltd for the year ending 31 March 2025; and

(ii) Explain whether or not Moro Ltd is required to pay its corporation tax liability for the year ending
31 March 2025 by quarterly installments.

(c) Explain the chargeable gains (if any) which will arise in Moro Ltd as a result of the sale of the
warehouse and of its shares in Lluc Ltd.

Professional marks will be awarded for the demonstration of skill in analysis and evaluation, and
commercial acumen in your answer.