1 D 2 C 3 D 4 A 5 D 7,000 6 C. 7 B ( 12,000 x 15%) + ( 500 x 25%) = 1,925 8 B 9 D 10 A. 11 C 275,000 x 2% = 5,500

Transcription

1 Answers

2 Applied Skills, TX MLA Taxation Malta (TX MLA) Section A December 2018 Answers and Marking Scheme 1 D 2 C 3 D 4 A 5 D 7,000 6 C 7 B (12,000 x 15%) + (500 x 25%) = 1,925 8 B 9 D 10 A 11 C 275,000 x 2% = 5, D 14,000 (capped value) x 20% = 2, B 14 A 3,200 x 25% = 800 (representing the recapture of the wear and tear allowance claimed in respect of the year of acquisition) 15 D 2 marks each 30 23

3 Section B 1 Belt Limited The transfer by David Spiteri on 1 February 2017 is not a transfer of a controlling interest. Therefore, the capital gain is calculated as follows: Consideration 200,000 Less: Cost of acquisition (20,000) Chargeable capital gain 180,000 Since David and Denise Spiteri are considered to be related persons for the purposes of the capital gains rules, and the two share transfers occurred on 1 February and 30 September 2017, within a period of no more than 18 months, the share transfers are considered to be a global transfer which constitutes a transfer of a controlling interest. Therefore, the capital gain is calculated taking the higher of the consideration and the market value. Percentage of market value represented by David and Denise s shares (global transfer): Y = (0 4 x A) + (0 2 x B) + (0 4 x C) = (0 4 x 40%) + (0 2 x [40/160]%) + (0 4 x 40%) = 37% 1 Tutorial note: Each A share carries double the voting rights of a B share; 60% of the shares in the company are A shares whereas 40% are B shares. Therefore, the voting rights pertaining to A shares are to be taken as being 120% (60% x 2) hence the proportion of voting rights attributable to B shares represents 40%/160% (40%/ (40% + 120%). Market value of global transfer (37% of BL valuation, 2,346,978) (W1) 868,382 W Less: Value taken into account in preceding relevant transfer (consideration for transfer of David Spiteri s shares) (200,000) Market value of shares transferred by Denise Spiteri 668,382 Calculation of capital gain: Transfer value (market value is higher than the consideration) 668,382 Cost of acquisition (20,000) Inflation deduction in respect of immovable property (W4) (10,416) W Chargeable capital gain 637,966 Workings: (1) Valuation of BL Net asset value as at 31 December ,599,000 Add: Goodwill adjustment (W2) 145,000 W Market value of immovable property 2,100,000 Book value of immovable property (1,500,000) Immovable property adjustment 600,000 1 Market value of shareholding in ML (W3) 12,978 W Book value of shareholding in ML (10,000) Adjustment in respect of 10% shareholding 2,978 Market value 2,346,978 24

4 (2) Goodwill adjustment BL ML Profit before tax for the year ended: Year ended 31 December ,000 2,100 Year ended 31 December ,000 3,000 Year ended 31 December 2014 (10,000) 5,400 Year ended 31 December ,000 6,200 Year ended 31 December ,500 7,750 Total profits for the 5 preceding financial years 362,500 24, years average profits (2/5ths) 145,000 9,780 1 (3) Valuation of BL s investment in ML Valuation of ML Net asset value as at 31 December ,000 Add: Goodwill adjustment (W2) 9,780 Market value 129,780 W Valuation of BL s stake (10%) 12,978 (4) Inflation deduction ,500,000 x x 20% = 10, Tutorial note: At law, the inflation deduction is taken on the portion of the immovable property represented by the shares transferred, i.e. 20%. 25

5 2 Telefon Limited (a) VAT computation for the period 1 April 2017 to 30 June 2017 Output tax: Value Output tax Export sales (exempt with credit) 1,550 Intra-EU B2B supplies (exempt with credit) 3,210 Intra-EU B2C supplies Domestic supplies (7, ,740) (retail and business) 9,860 1,775 Intra-EU acquisitions (reverse charge) 4, Intra-EU services received (reverse charge) ,820 Total output tax for the period 2,711 Input tax: Value Input tax Intra-EU acquisitions (reverse charge) 4, Intra-EU services received (reverse charge) Taxable purchases for resale (imports) 2, Overheads at standard rate (18%) stationery and services ( ) Rental expense 1, Capital goods 3, Water (exempt without credit) 200 Electricity at reduced rate (5%) Entertainment expenses (blocked) 120 Bank interest charges (exempt without credit) ,840 Total input tax for the period 2,180 VAT payable for the period (b) The VAT return should be filed by 15 August Martina Grech (a) Martina was born in Malta and as such is domiciled in Malta. She moved her residence to Luxembourg just before commencement of her employment with ASL, and she has retained her home in Malta, which she visits during her return trips to Malta. On this basis, she will continue to be considered ordinarily resident in Malta during the income tax year of assessment Accordingly, Martina will be taxed in Malta on a worldwide basis during the income tax year of assessment

6 (b) Computation of chargeable income for year of assessment 2018 Basic salary 75,000 Accommodation benefit 20,000 Interest-free loan (60,000 x 6 5% benchmark rate x 3/12) Health insurance benefit 900 Life insurance benefit (not taxable) 0 1 Paid vacation 2,000 Use of business mobile phone (not taxable) 0 Use of tablet computer (not taxable) 0 Value of taxable fringe benefits 23,875 Chargeable income from employment 98,875 Bank interest income 400 Total chargeable income 99,275 5 (c) Calculation of tax charge for year of assessment 2018 Using single rates: 99,275 at 35% 34,746 Less (8,725) 26,021 Using taxation rate applicable to overseas employment arrangements: 98,875 at 15% 14,831 1 Bank interest income taxed at 35% ,971 Therefore, it will be most beneficial to use the 15% rate of tax applicable to overseas employment, in terms of which the tax charge for income tax year of assessment 2018 is 11,050 lower at 14,

7 4 Emerald Limited Tax computation for the year of assessment 2018 Tax account: MTA FIA FTA Total (1) Income from local trade 220, ,000 (2) Income from overseas trade (attributable to PE) 195, ,000 (3) Foreign source interest 20,000 20,000 Add: FRFTC 5,000 5,000 (4) Capital gain on disposal of investment (Ruby Limited) 122, ,000 (5) Capital gain on disposal of investment (Sapphire Limited) 67,000 67,000 (6) Foreign source trading income (not attributable to PE) 30,000 30, ,000 25, , ,000 Tax charge at 35% 87,500 8, ,250 1 Less: FRFTC (5,000) (5,000) Tax payable 87,500 3, ,250 Explanations of applicable tax exemptions: (2) The participation exemption applies to foreign branch profits. (4) The shareholding is a 10% equity shareholding, and therefore constitutes a participating holding. The participation exemption applies (the anti-abuse provisions associated with the participation exemption apply to dividends but not to capital gains). (5) The shareholding constitutes an equity holding since it confers two out of the three equity holding rights. The investment cost 1,164,000 and was held for an uninterrupted period of 183 days so constitutes a participating holding. The participation exemption applies. Calculation of tax refunds claimable by Emerald Holdings Limited: 6/7ths of 87,500 (i.e. income sources (1) and (6)) 75, /3rds of 3,750 (i.e. income source (3)) 2,500 Total refunds claimable 77,

8 5 Wicker Limited Malta Foreign Franchise Franchise Gain on Bank Bank Bank restaurant restaurant income income sale of interest interest interest income income (PE) (Irish PE) property (local) (local) (foreign) Tax account MTA FTA MTA Untaxed Untaxed MTA FTA Untaxed IPA 4 5 (496,800 (690,850 (690,850 (1,120,000 (11,100/85% ) + 877,200 ) x 80% ) x 20% ) 840, ,000 ) Chargeable income 234,400 1,374, , , ,000 9,200 13,059 16,400 4 Tax chargeable at 35%/15% (82,040 ) (193,438 ) (3,220 ) (1,959 ) 2 Foreign tax incurred on foreign PE profits (120,100 ) (150,300 ) (24,200 ) *1 Allocation to tax accounts 152,360 1,103, , , ,000 5,980 11,100 16,400 2 Annual market rent allocation ( ,100) 1,350m 2 at 250/m 2 (337,500 ) 337, Distributable profits 152,360 1,103,600 21, , ,000 5,980 11,100 16, , *Note to markers: This 1 mark should also be awarded to candidates who allocate the foreign tax incurred on foreign PE profits as a negative figure in the untaxed account, instead of deducting it from the amount allocated to the FTA. 29

9 6 Daria and June (a) Income tax computation of the partnership for the year of assessment 2017 Profit before tax as per financial statements 215,000 Add back: Employees salaries 0 Partner salaries 0 Partner drawings 21,000 1 Employer s share of Class 1 employee social security contributions 0 Class 2 social security contributions relating to partners 6,500 1 Interest payable to partners 0 27,500 Deduct: Bank interest income subject to final withholding tax (3,400) 1 Partnership chargeable income 239,100 Allocation of chargeable income subject to normal rates between partners: Daria (3/5ths) 143,460 June (2/5ths) 95, ,100 Allocation of interest income subject to final withholding tax between partners: Daria (3/5ths) 2,040 June (2/5ths) 1,360 3,400 7 (b) Income tax computations of Daria and June for the year of assessment 2018 Daria June Share of partnership profits for the year 143,460 95,640 Salary from partnership 14,000 18,000 1 Interest from partnership 7,200 3,500 1 Director s fee (part-time rules do not apply) 6,000 1 Emoluments from secondary self-employed activity (part-time rules do not apply) 8,900 1 Primary school fees deduction (capped) (1,600) 1 Home for the elderly deduction (1,400) 1 Chargeable income 169, ,640 Interest income has been subject to final withholding tax and therefore is not subject to further tax 2,040 1,360 Calculation of individual tax charge for the year of assessment 2018 Daria June Using parent rates: 169,060 at 35% 59,171 Less (9,050) Using single rates: 124,640 at 35% 43,624 Less (8,725) Tax chargeable (excluding final withholding tax paid on local bank interest income) 50,121 34,