BIA Tax Extravaganza Seminar Held on 10 th November 2010

1. BIA Tax Extravaganza Seminar Held on 10th November 2010 Presented by: Cecilia Ramabu

2. Offsetting Tax Losses • Starting Point • Individuals – s.2 says they may not aggregate losses from one source with incomes from other sources. • Company – all sources of incomes are deemed to be from one source except where the company is also dealing in farming, mining, prospecting or disposal of property under 10th schedule.

3. Offsetting Tax Losses… • 3 types of losses; • Business losses (section 46) • Farming losses (section 46,47 & 48) • Net Aggregate Losses (10th Schedule)

4. Offsetting Tax Losses… • Business Losses (s.46) • Assessed Loss – loss determined by CG ( for individuals) Vs loss for company (s.78). • The business loss incurred in a tax year shall be c/f and claimed as a deduction against the relevant chargeable income of subsequent tax years.

5. Offsetting Tax Losses… • Unrelieved losses are forfeited after being carried forward for 5 years. • Where a TP has made one loss after another, they should be set off in their chronological order of occurrence. • Creditors have relinquished debts – use the benefit from the waived debt to reduce amount of the loss.

6. Offsetting Tax Losses… • How do we arrive at the Net Aggregate Losses (NAL) on disposal of certain capital assets. • NAL may be carried forward and set off against NAG accruing to the TP in the immediately succeeding tax year. • Any excess loss thereafter will become wasted.

7. Offsetting Tax Losses… • Farming Losses : Easy to make – qualifying development costs. • All taxpayers may; • c/f and set off against future farming income indefinitely. • c/bwd and set off against farming income for preceding 2 tax years.

8. Offsetting Tax Losses… • Individual farmers are allowed to deduct farming losses incurred in any tax year from other incomes generated in that tax year. • The deduction is capped at 50% of the aggregate amount of other incomes. • The other incomes generally do not include disposal gains under the 10th schedule.

9. Offsetting Tax Losses… • However if a TP disposes of farming property under the 10th schedule he is allowed to claim any unrelieved farming losses b/f from 5 preceding tax years, against the gain from such a disposal.

10. Transfer pricing

11. Transfer pricing… What is a transfer price? Dfn – is a price that one part of a company charges another part for goods and services. • The divisions must be semi autonomous • It could also be used for goods transferred from one member of the group to another.

12. Transfer pricing… Why is it necessary? • Performance evaluation • Motivation of division managers – they feel they are in control and are able to make some form of profit. • It is used to minimise tax liabilities for the group.

13. Transfer pricing… Why is it necessary…? • It may also be used to extract group profits from a country that charges high tax to one that charges low tax. • CG’s assumes that prices of goods should be set on an arms length basis – not possible within a group setting hence the need for control. section 36

14. Transfer pricing… OECD suggested arms length methods; • Traditional Transactional methods • Comparable Uncontrolled Price method (CUP) • Resale Price Method (RPM) • Cost Plus Method (CP method)- preferred

15. Transfer pricing… Transactional Profit methods: • Profit Split Method (PS Method • Transactional Net Margin Method (TNMM)

16. Transfer pricing… • CUP • Transfer price is set based on a comparison between two unrelated corporations executing comparable transactions. • Problems that prices will not be entirely be comparable.

17. Transfer pricing… • CP method • - used for goods that come from factories • price = cost of prodn + the mark up • Mark up is based on mark up charged by comparable companies. • Accepted by most tax authorities – it approximates the real cost of items.

18. Transfer pricing… • Advanced Pricing Method (APA) • Tax authorities can agree with a company on the price to be used in the future for a designated period. • -good for the taxpayer

19. Transfer pricing… • Why Now? • Too many reasons; • Mainly because govt needs more money for development.

20. Transfer pricing… • Thank you.