2018年广西ACCA12月考期成绩查询时间2019年1月16日

(b) Provide the directors of Acrux Ltd with a detailed explanation of the maximum rate of tax that will be suffered

on both the distributed and non-distributed profits of the non-UK resident investee companies where:

(1) there is a double tax treaty between the UK and the country in which the individual companies are

resident; and

(2) there is no such double tax treaty.

Note: you are not required to explain the position of the overseas resident branches. (6 marks)

1 Rowlands & Medeleev (R&M), a major listed European civil engineering company, was successful in its bid to become

principal (lead) contractor to build the Giant Dam Project in an East Asian country. The board of R&M prided itself in

observing the highest standards of corporate governance. R&M’s client, the government of the East Asian country, had

taken into account several factors in appointing the principal contractor including each bidder’s track record in large

civil engineering projects, the value of the bid and a statement, required from each bidder, on how it would deal with

the ‘sensitive issues’ and publicity that might arise as a result of the project.

The Giant Dam Project was seen as vital to the East Asian country’s economic development as it would provide a

large amount of hydroelectric power. This was seen as a ‘clean energy’ driver of future economic growth. The

government was keen to point out that because hydroelectric power did not involve the burning of fossil fuels, the

power would be environmentally clean and would contribute to the East Asian country’s ability to meet its

internationally agreed carbon emission targets. This, in turn, would contribute to the reduction of greenhouse gases

in the environment. Critics, such as the environmental pressure group ‘Stop-the-dam’, however, argued that the

project was far too large and the cost to the local environment would be unacceptable. Stop-the-dam was highly

organised and, according to press reports in Europe, was capable of disrupting progress on the dam by measures such

as creating ‘human barriers’ to the site and hiding people in tunnels who would have to be physically removed before

proceeding. A spokesman for Stop-the-dam said it would definitely be attempting to resist the Giant Dam Project when

construction started.

The project was intended to dam one of the region’s largest rivers, thus creating a massive lake behind it. The lake

would, the critics claimed, not only displace an estimated 100,000 people from their homes, but would also flood

productive farmland and destroy several rare plant and animal habitats. A number of important archaeological sites

would also be lost. The largest community to be relocated was the indigenous First Nation people who had lived on

and farmed the land for an estimated thousand years. A spokesman for the First Nation community said that the ‘true

price’ of hydroelectric power was ‘misery and cruelty’. A press report said that whilst the First Nation would be unlikely

to disrupt the building of the dam, it was highly likely that they would protest and also attempt to mobilise opinion in

other parts of the world against the Giant Dam Project.

The board of R&M was fully aware of the controversy when it submitted its tender to build the dam. The finance

director, Sally Grignard, had insisted on putting an amount into the tender for the management of ‘local risks’. Sally

was also responsible for the financing of the project for R&M. Although the client was expected to release money in

several ‘interim payments’ as the various parts of the project were completed to strict time deadlines, she anticipated

a number of working capital challenges for R&M, especially near the beginning where a number of early stage costs

would need to be incurred. There would, she explained, also be financing issues in managing the cash flows to R&M’s

many subcontractors. Although the major banks financed the client through a lending syndicate, R&M’s usual bank

said it was wary of lending directly to R&M for the Giant Dam Project because of the potential negative publicity that

might result. Another bank said it would provide R&M with its early stage working capital needs on the understanding

that its involvement in financing R&M to undertake the Giant Dam Project was not disclosed. A press statement from

Stop-the-dam said that it would do all it could to discover R&M’s financial lenders and publicly expose them. Sally

told the R&M board that some debt financing would be essential until the first interim payments from the client

became available.

When it was announced that R&M had won the contract to build the Giant Dam Project, some of its institutional

shareholders contacted Richard Markovnikoff, the chairman. They wanted reassurance that the company had fully

taken the environmental issues and other risks into account. One fund manager asked if Mr Markovnikoff could

explain the sustainability implications of the project to assess whether R&M shares were still suitable for his

environmentally sensitive clients. Mr Markovnikoff said, through the company’s investor relations department, that he

intended to give a statement at the next annual general meeting (AGM) that he hoped would address these

environmental concerns. He would also, he said, make a statement on the importance of confidentiality in the

financing of the early stage working capital needs.

(a) Any large project such as the Giant Dam Project has a number of stakeholders.

Required:

(i) Define the terms ‘stakeholder’ and ‘stakeholder claim’, and identify from the case FOUR of R&M’s

external stakeholders as it carries out the Giant Dam Project; (6 marks)

(c) For commercial reasons, Damian believes that it would be sensible to place a new holding company, Bold plc,

over the existing company, Linden Limited. Bold plc would also be unquoted and would acquire the existing

Linden Limited shares in exchange for the issue of its own shares.

If the new structure is implemented, Bold plc will provide management services to Linden Limited, but the

amount that will be charged for these services is yet to be determined.

Required:

(i) State the capital gains tax (CGT) issues that Damian should be aware of before disposing of his shares

in Linden Limited to Bold plc. Your answer should include details of any conditions that will need to be

satisfied if an immediate charge to tax is to be avoided. (4 marks)

3 The Stiletto Partnership consisted of three partners, Clint, Ben and Amy, who shared the profits of the business

equally. On 28 February 2007 the partners sold the business to Razor Ltd, in exchange for shares in Razor Ltd, with

each former partner owning one third of the new company.

The recent, tax adjusted, trading profits of the Stiletto Partnership have been as follows:

￡

Year ended 30 June 2006 92,124

1 July 2006 to 28 February 2007 81,795

Clint, who was 65 on 5 October 2006, retired when the business was sold to Razor Ltd. He is now suggesting that

if the sale of the partnership, and his retirement, had been delayed until 30 April 2007, his total tax liability would

have been reduced. Clint’s only other income is gross pension income of ￡6,100 per year, which he began receiving

in the tax year 2005/06. Clint did not receive any salary or dividends from Razor Ltd. It is estimated that the

partnership’s tax adjusted trading profits for the period from 1 March 2007 to 30 April 2007 would have been

￡20,760. Clint has overlap profits of ￡14,250 brought forward from when the partnership began trading.

Razor Ltd manufactures industrial cutting tools. On 1 July 2007, Razor Ltd will subscribe for the whole of the ordinary

share capital of Cutlass Inc, a company newly incorporated in the country of Sharpenia. It is intended that Cutlass

Inc will purchase partly finished tools from Razor Ltd and customise them in Sharpenia. It is anticipated that Cutlass

Inc’s annual profits chargeable to corporation tax will be approximately ￡120,000.

Ben and Amy will be the directors of Cutlass Inc, although Ben will not be involved in the company’s business on a

day-to-day basis. Amy intends to spend one or two weeks each month in the country of Sharpenia looking after the

company’s affairs. The remainder of her time will be spent in the UK. Amy has employment contracts with both Razor

Ltd and Cutlass Inc and her duties for Cutlass Inc will be carried out wholly in Sharpenia. Cutlass Inc will pay for

Amy’s flights to and from Sharpenia and for her husband and baby to visit her there twice a year. Amy is currently

UK resident and ordinarily resident.

The system of income tax and corporation tax in the country of Sharpenia is broadly similar to that in the UK although

the rate of corporation tax is 38% regardless of the level of profits. There is a double tax treaty between the UK and

Sharpenia based on the OECD model treaty. The clause in the treaty dealing with company residency states that a

company resident in both countries under domestic law will be regarded under the treaty as being resident only in the

country where it is effectively managed and controlled. Sharpenia is not a member of the European Union.

Required:

(a) (i) Calculate Clint’s taxable trading profits for the tax years 2006/07 and 2007/08 for both of the

alternative retirement dates (28 February 2007 and 30 April 2007). (3 marks)