Answers
Fundamentals Level Skills Module, Paper F6 (CYP) Taxation (Cyprus) Mr Ourin December 00 Answers and Marking Scheme Marks (a) (b) Capital (net worth) statement January 3 December 004 009 Assets Immovable property (note ) 50.000 950.000 Investments (note ) 0 30.000 Business equipment (note 3) 50.000 00.000 Motor vehicles (note 4) 0 50.000 Total assets 300.000.30.000 Liabilities Credit balance on new car (note 4) 0 (45.000) Net assets 300.000.085.000 Less: net assets January 004 (300.000) Capital increase for the period 785.000 Add: Special defence contribution on rental income (note ) 44.000 x 75% x 3% 3.40 Agent and transfer fees (note ) 8.000 + 50.000 68.000 Loss from sale of old car (note 4) 5.000 Living expenses (note 5) 0.000 Social insurance and cohesion fund contribution (note 5) 4.000 Income taxes (note 5) 30.000 + 0.000 50.000 Residential house rent (note 5) 6 x x.000 7.000 Total assets and expenses.37.40 Deduct Business income (note 5) (350.000) Rental Income (note ) 6 x x.000 (44.000) Profit from sale of shares (note ) see working (.500) Undeclared income for the period 630.740 Working: Profit from sale of shares Disposal proceeds (500 shares x 5 each).500 Disposal proceeds ((.000 500 sold + 500 Rights + 500 bonus) =.500 shares x 0 each) 30.000 3.500 Cost (.000 shares x 5 each) + (500 rights x 0 each) (0.000) Profit from sale of shares.500 8 According to the Assessment and Collection of Taxes Law 4/78 [s.30()], as amended, Mr Ourin, as a person deriving business income from the sources specified, must: For the years 004 008 issue invoices and receipts relating to his transactions and collections. For the year 009 since his business income exceeds the amount of 70.000: maintain books and records on the basis of which accounts are prepared in accordance with acceptable accounting standards, and 5 which are audited according to acceptable standards by a person who has a licence to act as an auditor of a company according to company law. 5 6 3
(c) (d) Marks Mr Ourin is making taxable supplies of services and as such has an obligation to register for value added tax (VAT) if: at the end of any month the value of such supplies for the months then ended exceeds the VAT annual registration limit of 5,600; or if at any time there are reasonable grounds to believe that the value of taxable supplies in the next 30-day period will exceed the annual registration limit of 5,600. Registration is effective from the end of the month following the month in which the registration limit was exceeded or from the beginning of the 30 day period respectively. 3 A self-employed person is liable to pay social insurance contributions for each week in which he has worked as a self-employed person. Self-employed people pay their contributions quarterly, in arrears, within one month and ten days from the end of each quarter. People wishing to pay monthly are allowed to do so. 3 30 Akropolis Ltd (a) (i) Profits subject to corporation tax for the year 009 Gross profit attributable to the Cyprus operations (460.000 55.000) 405.000 Recapture of 008 branch loss 40.000 Less: Distribution and administration expenses attributable to Cyprus operations (working ) (57.000) Distribution and administration expenses attributable to the branch operations 0 Right A attributable to the Cyprus operations (working ) (6.000) Right B attributable to the Cyprus operations (working ) (4.000) Right C attributable to the branch operations 0 Balancing allowance (working 3) (0.000) Profit subject to corporation tax 338.000 3 Tutorial note: Akropolis Ltd is subject to corporation tax only on its profits derived from the Cyprus operations. The profits from the Athens branch operations are exempt from Cyprus tax. Workings:. Distribution and administration expenses re Cyprus operations (accrual basis) Carried Paid Brought Profit and forward forward loss account Cyprus.000 60.000 (5.000) 57.000. Software expenses re Cyprus operations (accrual basis) Carried Paid Brought Profit and forward forward loss account Right A 93.000 46.000 (3.000) 6.000 Right B.000 34.000 (3.000) 4.000 3. Balancing statement on sale of fixtures and fittings Cost at January 006 40.000 Capital allowances at 0% for three years (006, 007 and 008) (.000) 8.000 Sales proceeds (8.000) Balancing allowance 0.000 4
Marks (ii) Profits subject to capital gains tax for the year 009 Plot of land bought on January 009 Sale proceeds.00.000 Less: Indexed cost (750.000 x 95/07 76) (786.) Commission to a non-licensed agent 0 Land transfer fees (5.000) Profit subject to capital gains tax 88.878 5 (b) Group relief available for the year 008 Alfa Ltd may surrender the losses of 70.000 to Akropolis Ltd since Akropolis Ltd held 75% of its shares for the whole year. Beta Ltd may not surrender any losses to Akropolis Ltd because Akropolis Ltd does not hold directly or indirectly 75% or more of its shares. Gama Ltd may not surrender any losses to Akropolis Ltd because: () Akropolis Ltd does not hold directly or indirectly 75% or more of the shares in Gama Ltd; and () the shares in Gama Ltd were held by Beta Ltd and Alfa Ltd for less than the whole year. 5 Group relief available for the year 009 Alfa Ltd may surrender its losses of 60.000 to Akropolis Ltd because, as in 008, Akropolis Ltd held 75% of its shares for the whole year. Beta Ltd may surrender its losses of 90.000 to Akropolis Ltd because following Alpha Ltd s acquisition of the remaining 5% of its shares, Akropolis Ltd indirectly holds 75% of its shares for the whole of the year 009. 5 Gama Ltd may surrender its losses of 30.000 to Akropolis Ltd because following Alpha Ltd s acquisition of the remaining shares in it and Beta Ltd, Akropolis Ltd indirectly holds 75% of its shares for the whole of the year 009. 5 7 5 3 Kerkez Ltd (a) Capital gains tax liability for the year 009 Sale of office premises Sale proceeds 900.000 Less: Indexed cost (400.000 x 95/78 3) (578.67) Commission to lawyer not allowed 0 Land transfer fees (.000) Capital gain 99.733 Working: Cost excluding land (400.000 x 75%) 300.000 Capital allowances for years 996 to 008 36.933 300.000 x 3 years x 3% = 7.000 Balancing statement Premises proceeds (900.000 x 75%) 675.000 Cost of premises (400.000 x 75%) (300.000) Wear and tear claimed (7.000) Balancing addition 58.000 Since there is a balancing addition, the capital allowances are not added back. 5
Marks Sale of plot of land Sale proceeds 800.000 Less: Indexed cost (00.000 x 95/79 7) (84.975) Commission to a licensed agent (3% x 800.000) (4.000) Land transfer fees (4.000) Capital gain 449.05 Sale of shares in Bank of Cyprus (not subject to CGT) 0 Total subject to capital gains tax (profit from sale of office premises plus profit from sale of land) 748.758 Capital gains tax liability at 0% 49.75 (b) (i) A declaration of disposal of property should be submitted in respect of a chargeable disposal within one month from the date of the disposal. (ii) Where no declaration is submitted the Director may issue a best judgement assessment on the basis of the information available to him at that time. Where the Director is of the opinion that the taxpayer s self-assessment declaration is less than a proper assessment he may within three months of its submission issue a supplementary assessment. 4 (iii) The capital gains tax payable is due: When the taxpayer makes a self-assessment declaration at the same time as filing the declaration, within one month of the date of the disposal. When the Director raises a direct assessment (best judgement or supplementary), not later than the end of the month in which the assessment is raised. (iv) Where under the terms of the sales agreement the consideration is paid by instalments, the capital gains tax due can also be paid by instalments, but with interest from one month from the date of disposal to the date of payment of the instalment in each case. 0 4 (a) (i) Where a customer fails to pay due to bankruptcy or other reasons, then the supplier may claim bad debt relief provided all four of the following conditions are met: a supply of goods and services has been made for consideration in money or by barter; output VAT has been accounted for and paid over by the supplier; the whole or part of the debt has been written off as bad in the supplier s books; and at least months has elapsed from the time that payment was due. Claims for bad debt relief are subject to a four year time limit. 4 (ii) A taxable person must account for output VAT charged to a customer, irrespective of whether the debt has been paid. On a claim being made by the supplier, bad debt relief is given for the VAT chargeable on the outstanding amount less any amount subsequently received in respect of the bad debt. If there has been a series of supplies, any payments made by the customer must be allocated on a FIFO basis unless the customer has allocated a specific payment to a particular supply and paid for that supply in full. Relief is given by including the recoverable amount in the total of input VAT on the VAT return for the period of the claim. Following a bad debt relief claim, the customer is required to repay the VAT that he has claimed on the supplies for which he has not paid to the VAT Commissioner. 6
Marks The supplier must notify the customer that bad debt relief is being claimed, and this notification serves as an instruction to the customer to repay the input VAT. Notification must be made within seven days of the bad debt claim. The supplier must keep all necessary documents to support the claim. 5 (b) (c) VAT bad debt relief claimable by Mr Nikos The payment of 5.600 is deemed to cover the following supplies (FIFO basis): VAT VAT inclusive Supply on 3 March 009.000 Supply on 30 April 009.50 50 Supply on 8 May 009 (see working).450 30 5.600 470 Working: VAT applicable.450/4.600 x 600 = 30 Total VAT accounted for 750 Total VAT deemed paid (470) Total bad debt relief in respect of unpaid part supply of.50 on 8 May 009 80 4 A VAT invoice need not be issued where: the supply is zero rated; input tax is not deductible; the supply is for no consideration (even if VAT is chargeable); the supply falls under the profit margin scheme; the customer is not a taxable person; in the case of a retailer s invoice, the customer does not request one. Any FOUR items at marks each maximum 5 7
5 Fernandez Ltd Marks Corporation tax payable for the year 008 Taxable income 008 3.550.000 Tax losses from 007 (50.000) 3.400.000 Corporation tax at 0% 340.000 Provisional tax paid (5.000) 88.000 Additional tax 0% of 88.000 (provisional tax payment less than 75% of the amount due) 8.800 96.800 Self-assessment tax paid (5.000) Tax payable by self-assessment on 3 July 009 9.800 Additional tax of 5% of 96.800 (tax unpaid at 3 January 00) 4.840 96.640 Interest at 8% on 9.800 for six months (completed months only) 3.67 Total amount due as at 8 February 00 00.3 Penalty for late submission of tax return 5 Total including all penalties and interest 00.363 0 8