Professional Level Options Module, Paper P6 (CYP) 1 Elsi and Andreas

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1 Answers

2 Professional Level Options Module, Paper P6 (CYP) Advanced Taxation (Cyprus) December 2011 Answers 1 Elsi and Andreas Memorandum To: Elsi and Andreas From: A. Consultant Date: 23 March 2011 Re: Various questions arising as a result of our recent meeting I was very happy to see you both today. I wish you the very best of luck with your business ventures and look forward to working together. With regards to the questions that arose during our meeting, I would like to bring to your attention the following points: (i) (ii) (iii) (iv) Ivana Ltd value added tax (VAT) matters With regards to Ivana Ltd s existing purchases, you do not need to apply the reverse charge to the invoices you receive from the Netherlands. Given that the goods will not be arriving to Cyprus and Ivana Ltd is VAT registered in Cyprus, these supplies are zero rated. The VAT Office was correct in telling you that Ivana Ltd should not charge VAT on the invoices to France. Nor are you required to register for VAT in France. This is because Ivana Ltd will opt to use the simplified procedure as a result of triangulation. Ivana Ltd, a Cyprus VAT registered company, undertakes triangular transactions since it purchases roses from a supplier registered for VAT in the Netherlands, sells them to flower shops which are VAT registered in France, and the roses are shipped directly from the Netherlands to France. Without the simplified procedure Ivana Ltd would be acquiring and supplying those goods in France and thus Ivana Ltd would be required to register for VAT in France. Instead, it can opt for the French customer to account for the VAT using the reverse charge method. You should confirm the VAT registration number of your customers (including the country code) and keep this confirmation on file. You should also keep a copy of the transportation documents showing the audit trail of the shipment from the Netherlands to France. The sales to Russia do not constitute triangulation given that the end buyer is not in the EU. In this case the flowers are exported from the Netherlands to Russia, which is outside the scope of Cyprus VAT (and, indeed, EU VAT). As a result, Ivana Ltd will still not need to charge VAT on the invoices to Russia. Structuring of the investment in Vasilis Ltd The joint venture (JV) income from the sale of roses would in either case be taxed at 20% in Russia, in Vasilis Ltd. Also, any dividend that is declared would be subject to 5% Russian withholding tax, whether Ivana Ltd s 50% investment in the JV is held directly in Vasilis Ltd or through Cynthia Ltd. So until this point, Ivana Ltd would be indifferent as to how the investment is held. However, holding the investment through Cynthia Ltd offers two advantages: (1) Ivana Ltd would be looking to sell the JV shares within three years. If the investment in the JV is made directly in the share capital of Vasilis Ltd, then Ivana Ltd would incur a 20% Russian capital gains tax on any profit from the sale. If the JV is held through Cynthia Ltd, Ivana Ltd would have the opportunity to dispose of the shares in the Cyprus company without incurring any tax because the gain from the sale of such shares will be exempt from income tax in Cyprus, and outside the scope of Cyprus capital gains tax and Russian tax. (2) I understand that Vasilis Ltd declares an annual dividend, and that Ivana Ltd would like to receive as little dividend as possible in the first three years. The dividend income received by Cynthia Ltd would not be subject to corporation tax or special contribution for the defence tax (SDC) in Cyprus. 70% of the after-tax accounting profit of Cynthia Ltd should be declared as dividends within two years from the end of the tax year in which the profits were made, otherwise that amount would be subject to SDC at 15% under the deemed distribution rules. Given that any dividend declared between Cyprus companies is not subject to SDC, then by holding the investment through Cynthia Ltd, Ivana Ltd can delay, by up to two years, the amount of profits that it would receive, without any adverse tax consequences. Ivana Ltd bank loan interest The bank loan was made for the purpose of investing in shares which is of a capital nature. In addition, the shares themselves can only produce dividend income or a gain from their sale, both of which are exempt for corporation tax purposes. As such the interest payment would not be an allowable deduction for Ivana Ltd. Transfer pricing issue In the case of a 50% investment in Vasilis Ltd (whether directly or indirectly), Ivana Ltd and Vasilis Ltd will be related parties. As such any transfer price for transactions made between them should be made at arm s length. Therefore the 70% discount 15

3 that would be offered, and that would result in a loss for Ivana Ltd, would not be accepted by the Cyprus Inland Revenue. A potential solution is the following: Ivana Ltd should follow the advice above and purchase 50% of Cynthia Ltd. Following this, Ivana Ltd could sell the roses to Cynthia Ltd at a discounted price. Cynthia Ltd would then sell them on to Vasilis Ltd at the current market price of 1,50 per rose. This has the advantages of: 1. leaving the same total amount of profit from which both Ivana Ltd and the Russian partner would benefit, in the same way as the original idea of selling directly to Vasilis Ltd; and 2. the margin left in Cynthia Ltd would be taxed at a reduced corporation tax rate of 10%, rather than the 20% rate that would apply to Vasilis Ltd in Russia. The question is what size of discount would be acceptable to the Cyprus Inland Revenue. The price should be agreed in advance with them, however, they would be more willing to accept the above scheme given that the same total amount would be subject to corporation tax in Cyprus as that had Ivana Ltd sold directly to Vasilis Ltd at the market rate of 1,50. The only difference is that the profit is taxable in two Cyprus companies rather than one. The only adverse consequence is that 50% of the shares in Cynthia Ltd are held by a non-cyprus-tax resident, who will not be subject to SDC in Cyprus whereas had the profit been made by Ivana Ltd, all of the dividends would subject to SDC in Cyprus at 15%, given that the shareholder, Ivana, is a Cyprus tax resident. However, given the 70% accounting profit rule and the fact that Ivana Ltd will have deductions from its accounting profits, such as the bank loan interest, that will reduce the amount available as a dividend and thus the resulting SDC tax, there are persuasive arguments to convince the Cyprus Inland Revenue to accept a transfer price between Ivana Ltd and Cynthia Ltd of close to the 70% discount mark required. (v) (vi) Merger of Costa Pachna Limited (CPL) with Almagon Limited (AGL) The most tax efficient manner in which to undertake the merger is by using a merger of companies reorganisation scheme. You have two choices. Either you create a new company which will be the new audit firm (option 1), or one of the existing companies absorbs the other one (option 2). With option 1, CPL and AGL will both be dissolved without going into liquidation. Upon dissolution, they will each transfer all their assets and liabilities to the new company that you will form, in exchange for the issue to the original shareholders of CPL and AGL of shares representing the capital of the new company. With option 2, one of the existing companies, say AGL, will be dissolved without going into liquidation. Upon dissolution, AGL will transfer all its assets and liabilities to CPL in exchange for the issue to the original AGL shareholders of shares representing the capital of AGL. By using the reorganisation scheme, no taxes arise, including no SDC, no corporation tax, capital gains tax, land transfer fees or VAT. No balancing statements are required to be submitted and the receiving company will continue to claim capital allowances as if no change in ownership was made. As for the tax losses of AGL, these will also be transferred to the new company which will utilise them in the normal way. So both parties will benefit from the existing tax losses. Under both options, you can pay a cash amount to certain shareholders so long as this does not exceed 10% of the nominal value of the newly issued shares. Objections and other recourses Once you receive a tax assessment you have until the end of the month following the month in which the assessment was raised to file an objection in writing with the Income Tax Office (ITO). If a compromise cannot be reached during the examination of the objection, the ITO will issue its final determination. Following receipt of the final determination, you have a choice, you can either file a hierarchical recourse to the Tax Tribunal within 45 days, or apply to the Supreme Court within 75 days. If you disagree with the final decision of the Tax Tribunal, you can file a recourse with the Supreme Court against this decision, again within 75 days from the date that you received notification of the decision. At the Supreme Court the initial court case is normally heard by a single judge who will issue a first instance judgement. If you still feel aggrieved by this judgement you have 42 days from the date that you were notified of the decision to file an appeal to the Supreme Court, which will be heard by a full bench. 16

4 2 Kashialos Ltd A. N. Senior Tax Consultant Ltd 12 Aisopou Street Limassol Mr Alexis th October Street Limassol 16 July 2010 Dear Mr Alexis Re: Kashialos Ltd It was a pleasure to meet with you at our offices. With regards to the matters discussed, please find below the information and advice you have requested. Details of the tax calculations referred to are given in the appendix to this letter. (i) (ii) (iii) (iv) (v) (vi) Tax losses of Moore Ltd Due to an anti avoidance provision in the tax law, you will not be permitted to utilise in any way the losses in Moore Ltd. Kashialos Ltd purchased 90% of the share capital of Moore Ltd, and also changed the activities of the company from selling gardening tools to selling paint. There has thus been, within a three-year period, a change in ownership of the shares of Moore Ltd as well as a substantial change in the nature of its business. As such the losses brought forward in Moore Ltd may not be carried forward. Tax groups for group loss relief To be part of a tax group for the purposes of group loss relief, members must be Cyprus tax-resident companies, be part of the group for the entire tax year, and have a 75% effective (direct or indirect) shareholding connection. Thus only Kashialos Ltd and Kanthos Ltd form a tax group. Moore Ltd will not form part of the tax group in 2010 as it was not part of the group for the entire tax year. It will however be part of the tax group in Dali Ltd does not form part of the tax group as the effective shareholding of 60% is below 75%. Matisse Ltd cannot be part of the tax group as it is not a Cyprus tax resident company. Value added tax (VAT) registrations The reason that Kashialos Ltd is VAT registered both in Cyprus and in France is as follows: In Cyprus it is registered since it undertakes supplies of goods to other Cyprus companies, notably Kanthos Ltd. Such sales will have exceeded the registration threshold of prompting registration. With regards to France, the paint is imported into France from China by Kashialos Ltd who receives it at its factory. Kashialos Ltd has to register with the French VAT authorities in order to be able to undertake the importation. Sales to Monet Ltd Kashialos Ltd s factory in France constitutes a permanent establishment in France. As such, any trading income considered to arise from the permanent establishment may be considered French source income by the French tax authorities and subject to tax in France. However, such trading profits will be exempt from tax in Cyprus given that trading profits from a permanent establishment situated overseas belonging to a Cyprus tax resident company are exempt from Cyprus corporation tax. Purchase options We have analysed the tax situation with regards to the two options offered to you by Savva Ltd. If you choose Option 1, Kashialos Ltd sells its Cyprus warehouse and its French factory and you declare the maximum amount that you can declare as dividends, the total tax payable will amount to resulting in net income of (see Appendix working 1). If you choose Option 2 and sell your shares in Kashialos Ltd, the total tax payable amounts to resulting in net income of (see Appendix working 2). Therefore Option 2 is the preferable option as you will receive more cash net of tax than if you chose Option 1. Advice on negotiating position Given that Option 2 is the preferable option, Savva Ltd will have an inherent advantage in that it will not have to pay land transfer fees in order to place the warehouse and the factory in its name, either in Cyprus or in France. This could be used as a bargaining position. The benefit for Savva Ltd in Cyprus for the warehouse, based on the amounts as per Option 1, is 17

5 (see Appendix working 3). We are not aware of how the land transfer fee is calculated in France and you should take separate advice on this point. We remain at your disposal should you wish to discuss anything further. Yours sincerely A. N. Senior Appendix Working 1: OPTION 1 If Kashialos Ltd sells the factories Cyprus capital gains tax re Cyprus warehouse: Disposal income Less Cost of land with inflation adjustment Jan x (112,89/43,18) Land transfer fees (no inflation adjustment) 168 Construction cost with inflation adjustment Dec x (112,89/45,19) Renovation cost with inflation adjustment Aug x (112,89/77,11) ( ) Add back capital allowances On construction 25 years have passed thus fully utilised On renovations x 4% x 14 years Chargeable gain Capital gains tax at 20% French capital gains tax re French factory (see note): Disposal income Less Cost of factory with inflation adjustment May x (112,89/99,62) Land transfer fees (no inflation adjustment) ( ) Add back capital allowances ( ) x 4% x 5 years (see note below) nil Chargeable gain Capital gains tax at 16% Note: The factory is situated outside of Cyprus and thus is outside the scope of Cyprus CGT. However, it does fall under the scope of French CGT which is calculated in the same manner as for Cyprus CGT. Thus capital allowances would only be added back if they had been claimed under French income tax. This was not the case (they were claimed under Cyprus income tax). As such no capital allowances were claimed for French corporation tax purposes and as such none will be added back. Balancing statement for warehouse: Cost [ ] Capital allowances claimed [ ] (59.320) Written down value Sales price [ ] Balancing charge (restricted to allowances given) Corporation tax at 10%

6 Balancing statement for factory: Cost [ ] Capital allowances claimed [ x 4% x 5 years] (56.000) Written down value Sales price [ ] Balancing charge (restricted to allowances given) Corporation tax at 10% Special defence contribution tax (SDC) on dividends: Since you will be retiring we have assumed that you will want to take out all of the available profits as dividends: Accounting profit from sale of warehouse [ [ ]] Less related corporation tax (capital gains tax not deductible) (5.932) Accounting profit from sale of factory [ [ ]] Less related corporation tax (capital gains tax not deductible) (5.600) SDC at 15% Conclusion Total net amount received from option 1 is ( ) Working 2: OPTION 2 If you sell your shares in Kashialos Ltd: Any gain from the sale of shares is exempt from income tax. Therefore, you will only be liable to capital gains tax on the Cyprus warehouse as if you owned the warehouse yourself. The chargeable gain as calculated in working 1, above, is Since you have stated that you have never sold anything before, from this you can deduct your life-time exemption of Thus the chargeable gain will be resulting in capital gains tax at 20% of Conclusion Total net amount received from option 2 is ( ). Working 3: Land transfer fees on Cyprus warehouse: Value of warehouse Land transfer fees: First at 3% at 5% at 8% Land transfer fees payable Alexia (a) (b) Marex Ltd provides property management services. These services are offered to administration committees that are not taxable persons (thus are business-to-consumer or B2C transactions). The place of supply for services connected to immovable property is the country where the property is located. Where the property is located in Cyprus, Marex Ltd should charge Cyprus VAT and where the property is located in France, it should charge French VAT. Registration will, of course, be subject to the relevant applicable registration thresholds of Cyprus and France. Properties situated in Guan are outside the EU and thus any related property management services will be outside of the scope of both Cyprus and EU VAT. Margela Ltd and Marex Ltd are tax resident where their effective management and control was exercised. Although the term is not defined in the law it is generally taken to mean where: the majority of the board of directors reside, the board meetings of the company are held, the general policy of the company is formulated. The co-existence of all three criteria is essential. 19

7 (c) Taxation payable by Mr Tsum and Margela Ltd in Guan under the new tax laws Corporation tax Income from dividends Less property management services not tax deductible under new laws Taxable profits Corporation tax First at 0% Next at 4,5% Accounting profit after tax/dividend from Margela Ltd ( ) Dividend to Mr Tsum from Marex Ltd (W1) Tax on dividend at 20% Total tax payable under new Guan tax laws Taxation payable by Mr Tsum and Margela Ltd in Cyprus Corporation tax Income from dividends Less property management services not tax deductible: only income is dividend income which is tax exempt Less dividend income: exempt from corporation tax ( ) Taxable profits NIL Special defence contribution (SDC) Dividends received by Margela Ltd [ (W1)] (note) Withholding tax in Guan at 20% SDC at 15% in Cyprus double tax relief will reduce this to nil Accounting profit after tax/dividend from Margela Ltd [ ] Dividend to Mr Tsum from Marex Ltd (W1) SDC at 15% Total tax payable in Cyprus Conclusion Despite the changes in Guan tax laws it is not advisable for Mr Tsum to change his tax residency and that of Margela Ltd given that by remaining in Guan their overall tax liability would be ( ) lower than it would be if they were subject to tax in Cyprus. Note: Margela Ltd s Guanese subsidiaries derive income from rents which constitutes investment income. In addition the Guan corporation tax rate is 4,5% which is substantially lower than the Cyprus corporation tax rate. As such the dividend income derived from the Guanese subsidiaries is subject to SDC at 15%. The dividends received from Marex Ltd will not be subject to SDC as dividends between Cyprus tax resident companies are exempt from SDC. Working 1 Corporation tax Marex Ltd Corporation tax Taxable profits Corporation tax at 10% Profits after tax % distribution Dividend attributable to Mr Tsum (10%) Dividend attributable to Margela Ltd (51%)

8 4 Eleni (a) The badges of trade are as follows: the subject matter of the transaction; the length of ownership; frequency of similar transactions; supplementary work; circumstances responsible for the sale; motive; method of financing of the cost; knowledge of the owner; method of acquisition; and what happens with the sale proceeds. (b) (i) If the sale occurs soon, then the Nicosia restaurant would be sold possibly within one and a half months from the date of purchase. This small length of ownership is a strong indication of trading. On the other hand, it could be argued that the reason for the sale was that it was not possible to obtain a planning permit for residential use and thus the circumstances for the sale were such that Gavri had no choice but to sell. However, the fact that the largest share of the sale proceeds (being the London apartment) would be placed in Eleni s name for her personal use, and would not be used as an investment by the company, also indicates trading. But as the sales proceeds are equal to the cost of purchase there would be no taxable profit and thus no corporation tax payable by Gavri. Placing the London apartment directly in Eleni s name would be considered a disposal by the company. Eleni should put in place a sales agreement between herself and Gavri Ltd for the purchase of the London apartment so that the Inland Revenue would not consider the disposal as a dividend in specie and charge special defence contribution (SDC) at 15%. The arm s length principal would be effective and the house market value should be used. Thus, provided that the market value has not changed from the date of purchase, there would be no profit in the company as a result of the sale, so there would be no corporation tax payable either. (ii) (iii) The small time frame of three weeks from the date of purchase until the expected date of sale will certainly lead the disposal to be considered an adventure in the nature of trade, regardless of the original intention to hold the investment for a few years. The fact that the sale proceeds will not be reinvested, but instead will be used to issue a dividend, also indicates a transaction of a trading nature. This will mean that the profit of will be taxed at the corporation tax rate of 10% and, in addition, the distributed as a dividend will be subject to special defence contribution (SDC) at 15%. With regards to the old house in Pafos, the length of ownership of two years would point towards the disposal being a capital transaction. However, there are certain other aspects that would counter such claim. Throughout the holding period Eleni was renovating the house (supplementary works), and the house was financed through a bank loan. Both of these factors point towards a trading transaction. If the Cyprus Inland Revenue also decide that the disposal of the land in Greece or the Nicosia restaurant also constitute trading transactions, then Gavri Ltd will be deemed to be a trader in land, which is another very strong indication of trading for the Pafos house disposal. The indications are that the motive behind the purchase of the Pafos house was to make a trading profit. The transaction is therefore highly likely to be considered a trading one. 5 Thorn Ltd (a) (b) Normally, the supplier of a service is the person who must account to the tax authorities for any value added tax (VAT) due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. This is known as the reverse charge principal. If the service is vatable in Cyprus at the standard rate then an amount of VAT equal to 15% of the value of the invoice for the service received must be credited to the VAT output account and the VAT output tax paid to the VAT authorities. At the same time the same amount should be debited to the VAT input account. Whether in the VAT return the VAT input tax can reduce the amount of VAT output tax, will depend on the nature of the service received as well as on the type of business of the customer. Business-to-business or B2B transactions are those that are made to businesses whose activities are wholly of a business nature. It also includes supplies to entities which have both business and non-business activities, such as charities and government departments. On the other hand, business-to-consumer or B2C transactions are those that are made to: a private individual, a charity, government department or other body which has no business activities, or a person who receives a supply of services wholly for private purposes. As such the political party will be a B2C transaction as they do not carry out business activities. The government departments may be B2C or B2B transactions depending on the purpose of the service. 21

9 (c) (d) The freelance marketing professional from Italy will be subject to withholding tax at the rate of 10% on his total emoluments from the consultancy assignment in the Republic. Given that he will be paid net of taxes the tax will be x 10/90 = Thorn Limited is obliged to deduct the tax at source from any payments and pay it to the Inland Revenue in Cyprus by the end of the month following the month of payment. The payment should be accompanied by a statement explaining how the tax arose and how it was calculated. The donations made to political parties are not tax deductible as a political party is not an approved charity organisation, neither is the donation made for charitable, educational or cultural purposes. The ex-gratia payment is not tax deductible since it was made voluntarily by the company. The client entertainment expenses will be tax deductible subject to the normal restrictions applied to all such entertainment expenses in a tax year, being deductible only to the extent of 1% of the company s gross income up to a maximum of

10 Professional Level Options Module, Paper P6 (CYP) Advanced Taxation (Cyprus) December 2011 Marking Scheme 1 Elsi and Andreas Available Maximum (i) Explanation of VAT treatment of invoices from the Netherlands 1 Explanation of triangulation and why VAT registration in France is not required 4 Advice to confirm VAT registration number and shipping documents 1 Explanation of VAT treatment for sales to Russia and why it is not the same procedure as for France (ii) Explanation that sales of roses and dividends paid by Vasilis Ltd will be taxed in Russia regardless of shareholding 1 5 Explanation of issue that direct holding would result in Russian CGT on future sale 2 Explanation of two year SDC benefit via holding through Cynthia Ltd (iii) Interest not an allowable deduction with reason 2 2 (iv) Discounted transfer price will not be acceptable 1 Ivana Ltd and Vasislis Ltd are connected persons, transfer price should be at arm s length 2 Advise to sell to Cynthia Ltd at a discount to overcome issue of transfer price 1 5 Explanation of tax advantage of selling through Cynthia Ltd 1 5 Need to agree transfer price with ITO 1 Explanation why corporation tax is unlikely to be an isssue 1 Explanation of SDC issue in negotiating transfer price with ITO 1 Explanation of deductions in Ivana Ltd as counter argument to SDC issue (v) Advice to use merger of companies reorganisation scheme 1 Explanation of method by creating new company 1 5 Explanation of method by using existing company 1 5 No taxes arise under reorganisation scheme 1 No balancing statement required for reorganisation scheme 0 5 Capital allowances continue under new structure 0 5 Tax losses transferred to new structure 1 Cash amount must not exceed 10% of newly issued shares (vi) Date for objection on initial assessment 1 Choice to file with Tax Tribunal or Supreme Court following final determination with filing dates 2 Choice to file recourse against final Tax Tribunal decision with Supreme Court with filing date 1 Choice to file appeal against first instance judgement with filing date Format and presentation 1 Effective communication

11 2 Kashialos Ltd Available Maximum (i) Explanation of anti avoidance provisions 2 2 (ii) Definition of tax groups for group loss relief 1 Kashialos Ltd and Kanthos Ltd tax group 0 5 Explanation for Moore Ltd 0 5 Explanation for Dali Ltd 0 5 Explanation for Matisse Ltd (iii) Reason why VAT registered in Cyprus 1 Reason why VAT registered in France (iv) Factory is permanent establishment and French source income taxable in France 2 Exempt from Cyprus corporation tax (v) Option 1 Cyprus CGT calculation for warehouse 3 5 French CGT calculation for factory 2 Explanation of Cyprus CGT position for factory 0 5 Balancing statement for warehouse 1 5 Balancing statement for factory 1 5 Special defence contribution calculation for dividends 3 Option 2 Sale of shares exempt from income tax 0 5 Calculation of capital gains tax including use of life-time exemption 1 5 Conclusion and advice to Alexis (vi) Explanation of Savva Ltd s benefit re land transfer fees in France and Cyprus 1 5 Calculation of land transfer fees for warehouse 1 Recommendation to seek separate evidence re French factory Format and presentation 1 Effective communication

12 3 Alexia Available Maximum (a) Correct determination for place of supply rule 1 VAT treatment for properties situated in Cyprus 0 5 VAT treatment for properties situated in France 1 VAT treatment for properties situated in Guan (b) Place of effective management and control 1 Explanation of management and control (c) Calculation of Guan tax 2 5 Calculation of Cyprus tax 4 Calculation of Marex Ltd dividend distributions 1 5 Conclusion Eleni (a) List of badges of trade (½ mark for each factor) 5 5 (b) (i) Discussion of badges of trade pointing to trading (3 x 1 mark) 3 No corporation tax on exchange, with reason 0 5 Eleni and Gavri should sign sales agreement to avoid potential SDC 1 No corporation tax, with reason (ii) Discussion of length of ownership as deciding factor 1 Discussion of proceeds also indicator of trading 1 Corporation tax and SDC implications (iii) Discussion of length of ownership as pointing to a capital transaction 0 5 Discussion of other factors (½ mark each, maximum 1 5) 1 5 Implications of other transactions being treated as trading 1 Conclusion that transaction is trading

13 5 Thorn Ltd Available Maximum (a) Explanation of reverse charge principal 2 Explanation of how reverse charge is accounted for (b) Definition of B2B transactions 2 Definition of B2C transactions 2 Explanation whether transactions with political parties and governmental departments are B2B or B2C (c) Non-resident professionals taxed at source at 10% 1 Calculation of tax 0 5 Thorn Ltd obliged to deduct tax at source and pay over by the end of the following month 1 Payment must be accompanied by detailed statement (d) Explanation of tax treatment of donation 1 Explanation of tax treatment of ex-gratia payment 1 Explanation of tax treatment of entertainment expenses