Fundamentals Level Skills Module, Paper F6 (RUS) Taxation (Russia)

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1 Answers

2 Fundamentals Level Skills Module, Paper F6 (RUS) Taxation (Russia) December 2008 Answers 1 OOO Congus (a) Profits tax liability for the year Domestic sales of licences (exempt from VAT) 35,721 Domestic sales of services 18,065 * 100/118 15, Export sales of software and services 1,700 Prepayments (non-taxable item) Total sales 52, In 2008 the proportion of VATable sales in total sales is 32.26% ((15, ,700)/52,309.32). Only 32.26% of input VAT on fixed assets bought in 2008, and materials and services received is recoverable. The remaining VAT is to be included in the cost of fixed assets, and materials and services received respectively. Direct expenses: Materials 708*(1 18/118 * 32.26%) (673.16) Salaries (non-vatable item) (25,800) UST on salaries 25,800 * 26% (6,708) Direct depreciation and 10% write-off (Note 1) (588.31) Total direct expenses (33,769.47) Indirect costs: Indirect depreciation, write-off and amortisation of intangible assets (Note 2) (415.29) Salaries of administrative personnel (5,000) UST on admin. salaries 5,000 * 26% (1,300) Personnel leasing fee 590 * (1 18/118 * 32.26%) 1 (560.97) Business training for permanent employees 300 * 90% (270) Training expenses for outsourced employees non-deductible item Voluntary medical insurance for employees (Note 3) (924) Voluntary medical insurance for employees relatives non-deductible item Business entertainment expenses (Note 4) (98.73) Total indirect expenses (8,568.99) Non-sale income: Penalties recognised by court in Total taxable base before loss c/f 11, Tax at 24% 2, Note 1: Direct depreciation and immediate write-off (all amounts in 000 ): Fixed Historic Immediate Monthly NBV at 1 January NBV at Check Depreciation asset: cost (incl. write-off depreciation (for new assets 31 December*** 20% of cost (= NBV capitalised in 2008 norm (%) at purchase historic at 1 January VAT)* (10%) date, net of cost less NBV at 10% write-off) 31 December Servers % Computers 1, None 5.56% ** Total 2008 costs: * Historic cost of computers is reduced for full amount of input VAT at 18/118 rate. Historic cost of servers is reduced only for 32.26% fraction of input VAT at 18/118 rate, the remaining VAT is capitalised. ** NBV at 1 January 2008: = [1, * 90% * ((100% 5.56%) ^ 6 months of depreciation in 2007)] *** NBV at 31 December 2008 is calculated as follows: = [ * ((100% 3.33%) ^ 10 months of depreciation in 2008)] = [ * ((100% 5.56%) ^ 12 months of depreciation in 2008)] Total direct depreciation and write-off costs = (thousand ) 1 If a student states non-recoverable part of VAT on services (leasing and business entertainment expenses) as a separate expense category, full marks should be given. 17

3 Note 2: Depreciation, immediate write-off of car and amortisation of intangible asset included in indirect costs (all amounts in 000 ): Fixed Historic Immediate Monthly NBV at 1 January NBV at Check Depreciation asset: cost (incl. write-off depreciation (for new assets 31 December*** 20% of cost (= NBV capitalised in 2008 norm (%) at purchase historic at 1 January VAT)* (10%) date, net of cost less NBV at 10% write-off) 31 December Licence 300 None 3.33% 88.53** **** Cars 2,069.97* % 1, , Total 2008 costs: * Historic cost of cars: 2, = [725.7 * 3 units * (1 18/118 * 32.26%] ** NBV of licence at 1 January: = [300 * ((100% 3.33%) ^ 36 months of depreciation 2005 to 2007)] *** NBV at 31 December 2008 is calculated as follows: = [88.53 * ((100% 3.33%) ^ 12 months of depreciation in 2008)] 1, = [1, * ((100% 1.67%) ^ 6 months of depreciation in 2008)] **** NBV of cars reached the 20% threshold only in December (NBV at 1 December 2008 was thousand ), therefore special method of depreciation does not apply in Total indirect depreciation, amortisation and write-off costs = thousand Note 3 Voluntary medical insurance should be within 3% of labour costs (25,800, ,000,000) * 3% = 924,000, hence only 924,000 is deductible out of 1,248,000 Note 4 Business entertainment expenses can include the official dinner, interpreter s services, and the transportation services for the shareholders. Besides, business entertainment expenses should be limited to 4% of labour costs, including insurance costs: (25, , ) * 4% = 1,269 > ( ) * (1 18/118 * 32.26%) = 98.73, hence total (including the non-recoverable fraction of input VAT) 2 is deductible in full. The air tickets and hotel expenses incurred for the shareholders meeting will be treated as non-deductible expenses (b) VAT 000 Output VAT Sales of licences (exempt from VAT) VAT on domestic sales of services 18,065 * 18/118 2, Export sales of software and related services (zero VAT) 0 VAT on 2008 prepayments 3,717 * 18/ VAT on penalties recognised by the court 900 * 18% (provided the principal debt received in 2008) Total output VAT 3, Input VAT VAT on prepayments for ,360 * 18/118 (360) VAT on direct materials 708 * 18/118 * 32.26% (34.84) VAT on direct fixed assets: Servers * 3 * 18/118 * 32.26% (24.91) VAT on passenger cars * 3 * 18/118 * 32.26% (107.13) VAT on leasing fee 590 * 18/118 * 32.26% (29.03) Voluntary medical insurance for employees (exempt from VAT) VAT on business entertainment expenses ( ) * 18/118 * 32.26% (5.11) Total input VAT (561.02) Total VAT payable 2, If a student states non-recoverable part of VAT on services (leasing and business entertainment expenses) as a separate expense category, full marks should be given. 3 Alternatively the answer may be: 0 VAT on penalties due to many positive court decisions on this issue. 18

4 2 Anna and Vladimir (a) Personal income tax liability of Anna for 2008 withheld at source by Bars: Gross salary accrued 100,000 * 12 1,200,000 No standard personal allowance (since her income exceeds the 20,000 threshold in January) N/A No children allowance (her income exceeds 40,000 threshold for January) N/A Medical voluntary insurance paid by employer (non-taxable item) Medical insurance for her daughter paid by employer (non-taxable item from 1 January 2008) Imputed interest income on corporate loan for purchase of the share of three-room apartment (Note 1) Housing allowance (unavailable because the seller is Anna s close relative) Bonus from employer 144,000 Total employment income 1,344,000 Tax withheld at rate 13% 174,720 Note 1 In spite of the fact that the actual loan rate is less than the CBR rate, imputed interest income should not arise in 2008 since no interest payments occur in (b) Final settlement of Anna s personal income tax liability for the year 2008: Taxable base with the benefits from employer at 13% 1,344,000 Social deductions (Note 2) (100,000) Educational deduction for her daughter (within 50,000 ) (30,000) Imputed interest on bank loan (1st day is not taken into account) (Note 3) 147,746 Taxable base 1,361,746 Tax due to the budget at 13% 177,027 Tax withheld by her employer at 13% (174,720) Tax due under personal tax return at 13% rate 2,307 Taxable base at 35% Imputed interest income on deposit from 1 April up to 31 December (Note 4) Tax due to the budget at 35% Note 2 Voluntary medical insurance for her husband 18,000 Pension contribution for non-state pension fund for herself 50,000 Pension contribution for her parents 60,000 Total social deductions 128,000 Maximum limit (100,000) Hence, Anna should decide herself how to split the above deduction for each type of social expense incurred. Note 3 26 June to 30 September: 1,750,000 * (3/4 * 40% 10%) * ( )/366 92, October: 1,750,000 * (3/4 * 30% 10%) * 31/366 18, November: 1,750,000 * (3/4 * 30% 10%) * 30/366 17, December: 1,750,000 * (3/4 * 30% 10%) * 31/366 18,528 Total: 147,746 Note 4 Interest rate 45% is less than CBR rate on the date of prolongation and the deposit interest does not change for the year Under the new tax rules, the later decrease in the CBR rate does not give rise to an imputed income for Anna during the three years from 1 April (c) Final settlement of Vladimir s personal income tax liability for the year 2008: Gross salary accrued 38,000 + (147,900 * 100/87 * 11) 1,908,000 No standard personal allowance (since his income exceeds the 20,000 threshold in January) N/A Children allowance (his income does not exceed 40,000 threshold for January) (600) Educational deduction for his daughter: max 50,000 30,000 (20,000) Taxable income: 1,887,400 Tax at 13% rate 245,362 19

5 (d) Sale of investment share for Vladimir in 2008 and compare alternative options: For short-term strategy there are only two options: (1) Sale of share under reassignment agreement (provided he does not want to wait for ownership docs): Market value 6,000,000 Expenses incurred (3,000,000) Taxable income 3,000,000 Tax at 13% rate 390,000 (2) Sale of apartment in 2008 (provided he received title of ownership): If he receives the title ownership documents in 2008 and makes a decision to sell afterwards, then, in addition to deduction of actual costs (supported with documents) he may also use his housing allowance of 1,000,000 (in spite of the fact that he immediately sells the apartment). Therefore, in 2008 the personal income tax effect would be as follows: Market value 6,000,000 Housing allowance (1,000,000) Property sale allowance (3,000,000) (actual costs only) Taxable income 2,000,000 Tax at 13% rate 260,000 (3) Sale of apartment in 2011: Assuming that he received ownership in 2008, he can claim the 1,000,000 housing incentive in 2008 (his 2008 income is sufficient to utilise this in full). Hence, Vladimir can reduce his 2008 tax liability by 130,000 (13% of 1,000,000 ). In three years time he would be entitled to a property deduction of the full market value of the property on the date of sale. Hence, he would not pay any personal income tax on this transaction regardless of the amount of the sales gain. Therefore the most tax effective option is to get title of ownership and sell the apartment only after three years of ownership. 3 OOO Devante (a) (i) VAT liability for the year 2008 in respect of the following transactions: Donation of equipment Since the donation qualifies for VAT exemption, the previously recovered input VAT should be clawed-back in the amount proportionate to its accounting net book value (NBV). Total VAT offset in 2006: 2,950,000 * 18/118 = 450,000 Book value at the date of purchase: 2,950,000 * 100/118 = 2,500,000 Accounting NBV at the date of transfer: 2,500,000 2,500,000/(7 * 12) * 28 = 1,666,667 4 VAT clawed-back: 450,000 * 1,666,667/2,500,000 = 300,000 Output VAT (qualified donations as stipulated in the scenario) 0 Input VAT claw-back 300,000 Total VAT liability, which should be paid by 20 October ,000 Transfer of passenger car to an employee VAT should be assessed on the market value. There is no claw-back of previously recovered input VAT. Output VAT 177,000 * 18/118 = 27,000, which should be paid by 20 January For an alternative calculation based on monthly depreciation 1.19% (rounded to two decimal points) full marks should be given. 20

6 (ii) (iii) Deductibility of expenses for profits tax purposes for these transactions: Donation of equipment Sales proceeds (not a realisation) 0 Tax net book value at the date of transfer will be treated as non-deductible expense: (2,950,000 * 100/118 * 90%) * (84 ( ))/84 1,500,000 VAT claw-back should be treated as other deductible expenses for profits tax. 300,000 Transfer of passenger car Sales proceeds based on market value 177,000 * 100/ ,000 Net book value of passenger car deductible cost (Note 1) (156,000) Loss from transaction (6,000) For profits tax purposes the loss is deducted at the rate of 6,000/(60 34)= per month starting from January Note 1 Net book value at the date of sale: (472,000 * 100/118 * 90%) * (60 ( ))/60 = 156,000 5 Personal income tax for employee: Under this transaction the employee will receive a material benefit in the form of a free-of-charge car. Market value of the passenger car (should include VAT) 177,000 Imputed income 177,000 Tax at 13% 23,010 According to the Tax Code rules, the employee should submit a personal income tax return and pay the tax on the material benefit by no later than 15 July (b) OOO Applestroy VAT liability for the year 2008: Cost of building using own workforce: Wages and salaries 17,000,000 UST 17,000,000 * 26% 4,420,000 Materials 21,240,000 * 100/118 18,000,000 Services 18,880,000 * 100/118 16,000,000 Total cost 55,420,000 VAT on own capital construction: Total cost of the construction 55,420,000 Plus accounting interest for 30 January to 31 December (1st day is not taken into account): 20,000,000 * 30% * 336/366 5,508,197 Total cost with interest 60,928,197 Output VAT at 18% 10,967,075 Input VAT: VAT on materials 21,240,000 * 18/118 (3,240,000) VAT on services 18,880,000 * 18/118 (2,880,000) VAT on own capital construction (10,967,075) Output VAT on own construction is available for recovery after it is paid to the budget. Total input VAT (17,087,075) VAT recoverable (6,120,000) 5 Although the limit for the application of the lower depreciation rate to cars (300,000 ) is not in the rate sheet and not examinable, a full mark should be given if students apply it to the car tax depreciation for

7 4 (a) Svyatoslav s personal income tax withheld by employer NWest: Gross salary for the year 110,000*100/87*12 1,517,241 No personal allowance since income exceeds 20,000 No children allowance since income exceeds 40,000 Tax at 13% rate 197,241 Imputed interest income on employer s loan (Note 1) 8,538 Tax at 35% rate 2,988 Total personal income tax withheld by NWest 200,229 Note 1 Deemed interest income should be calculated as the difference between three-quarters of the CBR rate on the date the income is received (treated as the date of interest payment ) and the actual interest rate based on the agreement: 25 April 31 December 2008 (from 2nd day): 500,000 *3/4 * 50%* ( )/ ,074 Actual interest accrued: 25 April-31 December ,000 * 35% * 250/366 (119,536) Total imputed interest 8,538 (b) Final settlement of personal income tax liability for the year 2008 based on Svyatoslav s tax return: Taxable income at 13% 1,517,241 Loss on listed shares (Note 2) (114,040) No PIT consequences of gifted VBM shares in 2008 Tax base subject to rate at 13% 1,403,201 Tax due to the budget at 13% 182,416 Tax base subject to rate at 35% 8,538 Tax due to the budget at 35% 2,988 Total tax liability for ,404 Total PIT withheld by employer (200,229) Tax refund due from the budget (14,825) Note 2 Svyatoslav bought 450 GVC shares for 1,035,000, but sold only 200 shares. Hence all expenses incurred upon the acquisition that may not be directly attributed to each share should be deducted in proportion to the purchase value of shares sold. Sales income from GVC listed shares 200 * 2, ,000 Less expenses on sale (8,000) Incurred expenses on purchase: Purchase cost 200 * 2,300 (460,000) Broker s commission 4.5% * 200 * 2,300 (20,700) Registration fee (apportioned 12,000 * 460,000/1,035,000) (5,333) Other related expenses (apportioned 15,200 * 460,000/1,035,000) (6,756) Interest on employer s loan (Note 3) (113,251) Average quoted price should be applied since the shares have been sold at a loss. However, the average quoted price is less than the actual sales price: 200 * (2, ,800)/2 = 480,000 < 500,000 Application of the average quoted price may not increase a deductible loss over the actual loss, therefore no adjustment of the actual loss is required. Total loss (114,040) 22

8 Note 3 (starting from the 2nd day) 25 April 30 September interest is less than CBR rate, so actual interest should be used: 500,000 * ( )/366 * 35% = 75,546 1 October 31 December interest exceeds CBR rate, so CBR rate should be applied 500,000 * ( )/366 * 30% = 37,705 Total interest 113,251 Alternatively Note 3 (starting from the 2nd day) can be like follows 6 : 25 April 30 September interest is less than CBR rate, so actual interest should be used: 500,000 * ( )/366 * 35% = 75,546 Interest from October is not accounted as securities were sold on 12 of October and only paid interest is deductible. Interest prorated between purchased and sold securities: 75,546/450 * 200 = 33,576 (c) Effective from 1 January 2008, an employer acting as a tax agent is obliged to pay withholding personal income tax during the period of one month either from the final date of the tax period or the date of the funds transfer. 5 (a) Interest deductible for profits tax purposes for Company D in respect of the two loans received: Loan received from Company E: Test for thin capitalisation rules: since Company B owns 30% in Company D, loans from Company B and from its Russian affiliated (dependent) companies are treated as controlled loans. Since Company B has 70% share in Company E, Company E is affiliated with Company B. Therefore, the loan from Company E to Company D is a controlled loan. The other criteria thus need to be checked: if the controlled debt exceeds own capital by more than three times at the end of the reporting period (i.e. end of the 4th quarter 2008). Principal amount of debt 2,500,000 EUR Principal debt at 31 December 2008 (a) 92,000,000 (2,500,000 * 36.8) Number of days for interest (b) ( ) = 84 days (1st day not counted) Accrued % (c) = (a) * (b)/366 * 10% 2,111,475 Since the interest rate is less than the 15% per annum limit, deduction of interest is limited only by the thin capitalisation rules. Total control debt at 31 December 2008 (d) = (a) + (c) 94,111,475 Own capital (e) = 268 (256 10) 22,000,000 Own capital * 3 (f) 66,000,000 Thin capitalisation test 94,111,475>66,000,000 Therefore, thin capitalisation rules should apply. Thin cap. ratio: (g) = (d)/(f) * 30% (94,111,475)/(66,000,000 * 30%) Maximum limit of % deductible (c)/(g) 444,231 Alternatively loan received from Company E can be treated as follows: Company E (Russian legal entity) is affiliated to Company A (foreign legal entity) so the loan could be controlled. Second condition should be met: direct or indirect participation of FLE in Company D should be more then 20%. This condition is not met as 60% x 30% equals 18% participation <20%, thin capitalisation rule is not applied. Interest accrued as at 31 December ,500,000 * 10% * ( )/366 * 36.8 = 2,111,475 Loan received from Company A: Company A indirectly owns an interest in Company D, but as 0.6 * 0.3 = 0.18 < 20%, the thin capitalisation rules should not apply. Interest accrued at 31 December 2008 will be as follows: 16 October 31 December (1st day not counted) 1,000,000 * 7.5% * ( )/366 * 36.8 = 580,656 6 The same total mark should be given for Note 3 alternative answer. 23

9 (b) (i) Withholding tax on dividend payments for relevant companies: (1) Company C pays dividends to Company A, a foreign company Profits tax base 120,000,000 Tax rate at 24% rate 28,800,000 Profits after tax 91,200,000 Dividends subject to distribution (12%) 10,944,000 Dividends paid to Company A: 40% of 10,944,000 4,377,600 Company C should withhold 4,377,600 * 15% 656,640 (2) Company D pays dividends to Company B Profits tax base 100,000,000 Tax at 24% rate 24,000,000 Profits after tax 76,000,000 Dividends paid to all shareholders in 2008 (12%) 9,120,000 Less dividends received from Company G (2,900,000) Tax base subject to 9% tax rate 6,220,000 30% of tax base related to dividends to Company B 1,866,000 (Note: this amount is not equal to dividends paid to Company B) Company D should withhold tax at 9%: 1,866,000 * 9% 167,940 (ii) The dividends from Company E to Company B should be exempt from tax provided that: (1) Company B has owned its share of Company E for more than a one year period, i.e. from 2005 (2) Company B s invested amount exceeds 500 mln., i.e. 520 mln. (3) Company B owns 50% or more of the capital in Company E, i.e. 70% Hence, Company B should receive the 5,500,000 dividend from Company E as a net amount without withholding tax. 24

10 Fundamentals Level Skills Module, Paper F6 (RUS) Taxation (Russia) Congus December 2008 Marking Scheme Marks (a) Profits tax liability for the year 2008 Domestic sales of services net of VAT Export sales (zero VAT) Sales of exempt licences and non-taxable prepayment Proportion of VATable sales 1 Direct expenses: Materials net of VAT Correct UST on salaries at 26% Direct depreciation: Server (2008): Initial 10% write-off net of recoverable portion of VAT 1 Depreciation ( for deduct.10%, for correct months, 1 for correct non-linear formula for NBV at 31 December 2008) 2 Check 20% of historic cost Computer (2007): Depreciation ( for net of VAT, for deduct. 10%, for correct months, 1 for correct non-linear formula for NBV at 1 January 2008 and NBV at 31 December 2008) 3 Check 20% of historic cost Indirect costs: Amortisation of intangible asset: NBV at 1 January 2008 ( for correct amortisation rate, for correct months, 1 for correct formula for NBV at 1 January 2008 and NBV at 31 December 2008) 2 Check 20% rule Passenger car: Immediate 10% write-off net of recoverable portion of VAT 1 Depreciation ( for deduct. 10%, for correct months, for 0.5, 1 for correct non-linear formula for NBV at 31 December 2008) 3 Check 20% rule UST on admin. salaries at 26% Personnel leasing fee net of recoverable portion of VAT Training expenses for permanent employees (90% only) Application of 3% limit for voluntary medical insurance Not including non-deductible item for medical insurance to employees relatives Business entertainment expenses: Exclusion of part of VAT Application of correct 4% limit for labour expenses, including insurance expenses Excluding air tickets and hotel expenses (non-deductible) Non-sale income: Penalties recognised by court in 2008 for the customers debt Correct tax rate at 24% 23 (b) VAT Output VAT Export sales and sales of software and related services (nil VAT) VAT on domestic sales of services Output VAT on 2008 prepayment at 31 December 2008 VAT on penalties related to sales recognised by the court Input VAT VAT on prepayments at 1 January 2008 Application of correct recovery proportion 1 VAT on direct materials VAT on direct 2008 fixed assets-servers VAT on passenger car VAT on leasing fee Exempt from VAT voluntary medical insurance on employees VAT on business entertainment expenses within the limit

11 2 Anna and Vladimir Marks (a) Personal income tax liability of Anna for 2008 withheld at source by Bars Gross salary accrued No standard and children personal allowance Medical voluntary insurance paid by employer (non-taxable item) Medical insurance for her daughter paid by employer (non-taxable item from 1 January 2008) Imputed interest income on corporate loan (not-taxable) Comment on the rule application for not including into taxable base Housing allowance for stating the reason for non-application 1 Including correct amount of bonus for the year 2008 Tax withheld at 13% 5 (b) Final settlement of Anna s personal income tax liability for the year 2008: Social deductions : Including voluntary medical insurance for her husband Including pension contribution for herself Including pension contribution for her parents 1 Application of correct maximum limitation of 100,000 to the total amount of social expenses Educational deduction for her daughter (within 50,000 ) Imputed interest income on deposit from 1 April up to 31 December not taxable Explanation of new rule application for three years from the relevant date 1 Imputed interest on bank loan: 26 June to 30 September (apply ¾, correct CBR rate, correct days ) 1 October to December (apply ¾, apply new CBR rate, apply correct days ) 1 Tax due to the budget at 13% Tax withheld by her employer at 13% Tax due under personal tax return at 13% (c) Final settlement of Vladimir s personal income tax liability for the year 2008: Correct gross salary accrued 1 No standard personal allowance Children allowance (his income does not exceed 40,000 threshold for January) 1 Correct educational deduction for his daughter: max 50,000 30,000 1 Tax at 13% rate 4 9 (d) Comparison of alternative options for Vladimir in respect to his investment share: (1) Sale of share under reassignment agreement: Market value Correct expenses incurred Tax outcome at 13% (2) Sale of apartment in 2008 (provided he received ownership in 2008): Housing allowance 1 Property sale allowance (actual costs) 1 Tax at 13% (3) Sale of apartment in 2011: Housing allowance in Property allowance equal to sales proceeds after three years 1 Correct conclusion

12 3 OOO Devante Marks (a) (i) VAT liability for the year 2008 in respect of the following transactions: Donation of equipment No output VAT (qualified donation) Calculation of accounting NBV ( net of VAT, correct months) 1 Proportion of VAT clawed-back 1 Correct deadline for VAT payment to the budget Sale of passenger car to employee (ii) (iii) Correct output VAT based on market value Correct deadline for VAT due to the budget Deductibility of expenses for profits tax purposes for these transactions: Donation of equipment Calculation of tax NBV ( for net of VAT, for net of 10%, for correct months ) VAT claw-back for donations deductible expense Sale of passenger car Correct sales proceeds based on market value net of VAT Correct NBV ( for net of VAT, for net of 10%, for correct months) 1 Application of rule for loss allocation during the residual correct months 1 5 Personal income tax for employee: Market value of the passenger car (should include VAT) Correct deadline for tax payment (b) Applestroy VAT liability for the year 2008 on own construction: Output VAT: Include UST in the cost of own premises Include net amount of materials in the cost of own premises Include net amount of services in the cost of own premises Application of accounting interest (correct days) 1 Output VAT at 18% Input VAT: VAT on materials and services for own premises Offset of output VAT on own capital construction 1 Net VAT recoverable

13 Marks 4 (a) Svyatoslav s personal income tax withheld by employer NWest: Gross up salary for the year 1 No personal allowance since income exceeds 20,000 No children allowance since income exceeds 40,000 Tax at 13% rate Imputed interest income on employer s loan: ( for ¾ of CBR rate, 1 for no change in CBR rate, for correct number of days) 2 Tax at 35% rate 5 (b) (c) Final settlement of personal income tax liability for the year 2008 based on Svyatoslav s tax return: Loss on listed GVC shares: Comparison of income with average quoted price 1 Incurred expenses on purchase: Purchase cost Sales costs Correct broker s commission Registration fee apportionment Other related expenses apportionment Interest on employer s loan: 25 April 30 September (1 for correct actual rate, for days) 1 1 October 31 December (1 for CBR rate, for days) 1 No personal income tax on VBM shares Tax due to the budget at 13% Tax due to the budget at 35% Total PIT withheld by employer Tax refund from the budget Employer s obligation in respect of withheld PIT payment: Comment on tax agent obligation for PIT withholding: Mention date of recognition and 1 month period ( each)

14 Marks 5 (a) Calculation of deductible interest for two loans Loan received from Company E: Comment on application of thin capitalisation rules based on ownership test ( for more than 20%, for affiliated company) 1 Principal debt amount as at 31 December 2008 in Comment on 15% deductibility limit Interest accrued as at 31 December 2008 (correct days and forex rate) 1 Correct amount of own capital (deducting tax liabilities ) 1 Comment on application of thin capitalisation rules based on proportion of debt to own capital Correct thin cap. ratio in proportion to share in capital 1 Maximum limit of % deductible 1 Loan received from Company A: Comment on non-application of thin capitalisation rules to this loan (by calculation of indirect ownership) Interest accrued (correct days and forex rate) 1 8 (b) (i) Profits tax withholding on dividends payments Company C pays dividends to Company A (foreign company) Tax at 24% rate Dividends subject to distribution (12%) 40% to Company A Tax withheld at 15% Company D pays dividends to Company B (Russian company) Tax at 24% rate Dividends subject to distribution (12%) Less dividends from subsidiary Company G 1 30% to Company B Tax withheld at 9% 5 (ii) Dividends from Company E to Company B Minimal ownership period Minimal investment amount Minimal ownership % for exemption Conclusion exempt from withholding tax