Answer the questions below

Other Notes: 0) (ii) (iii) (M (V) (Vi) The composition of the medical service revenue: Shs '000' Medical insurance 6.251.278 SeIf - pay 1.513.700 Government contracts 2.831.000 QM HHUL earned interest off grant funds that had been placed in a fixed income account in a local bank. The Tax Written down values brought forward from 2017 are: Shs 'million' Class I 3.450 Class II 300 Class IV 1,620 Disposed of three vehicles that were acquired as below: Motor vehicle Acquisition Cost '000' Disposal Proceeds Date '000' Ambulance 1/07/2008 24,300 5,170 Land cruiser 1/07/2008 85.900 14.620 Sedan 1/01/2014 65,600 Written off in accident 00 not compute the accounting prot or loss and tax During the year HHL acquired the following: Cost '000' Furniture and Room fittings 420.330 Medical Equipment (Donation) Valued at: 1,349,010 Medical Equipment (Paid for) 846,700 2 Ambulances 125.000 Construction in progress 329,000 A cost of Shs 401,763,000 was incurred on intensive care patients who died without paying bills. This cost was taken as a deduction. One of the donors has reimbursed the hospital for these costs. Tax losses brought forward from 2017 amount to Shs 18,639.428.000 (vii) The company has acquired Software licenses worth Shs 65 million and is valid for a period of 6 years. The amortised cost is included in the supplies and service cost of Shs 6.5 million. (viii) The hospital rests on two acres of land that are leased on an annual basis and the cost is passed through profit and loss statement. It is made up of two structures. an office block and 5 storey block that houses the reception. emergency wing. doctors' offices, a thirty room recovery centre and the state of the art laboratory and theatre. The costs for set up are as per the table below: Office Block W 2 700 000 7 300 000 Date of comoletion 1 Jul 2008 11 Jul 2008 You are the tax manager charged with all taxation matters and policies at HHUL. Required: Prepare a draft income tax computation for HHUL for the year ended 31 December 2018. (Total 25 marks) Question 4 A group of farmers from Bundibugyo have decided to ioin hands and work together to reduce costs of production while increasing their revenues. The plan is to jointly collect funds from all the farmers. purchase input materials such as seeds and fertilisers in bulk and also iointly acquire two garden tractors. a Houle slurry trailer and a combine harvester. Required: (a) Given your expertise in the Income Tax laws and their application. explain the tax implications of: (i) Setting up a Savings and Cooperative Savings schemes. All the farmers would jointly pay monthly installments into the fund. and part of these collections would be utilized to fund the raw materials and capital expenditure. The Sacco would also be responsible for the construction of a two storeyed warehouse and office building that would store the produce and serve as offices for the operations of the SACCO. The SACCO would also be responsible for the procurement. monitoring and payment of a marketing agency which will seek out market for the farm produce which is maiorly coffee and cocoa. Revenues from produce sale would be shared in proportion to the supplies made from the farmers. The SACCO will deduct a 10% charge on the gross revenue as a return for its contribution. Question 2 Tough Times Limited (TTL). a local services company intends to apply for withholding tax exemption from the Uganda Revenue Authority for the period January 2020 to July 2020. This follows recent advice it received from its tax advisors concerning the challenges in cash flows as a result of withholding tax withheld on its services revenue. In addition to this, the company intends to align its tax period to its parent reporting period, which ends at 30 September. Required: Advise TTL on the following: (a) The different compliance requirements with regard to filing of returns and payment of Income tax as per new tax period. (5 marks) (b) The resident and nonresident directors of company X of their compliance requirements in regard to registration. filing of returns and payment of income tax. (5 marks) (c) The process through which the company can get a change in accounting peods (5 marks) (d) Excluding the circumstances stated in (a) and (b) above state when can a commissioner require a return above. (5 marks) (e) TTL recently lost a court case to an employee who was dismissed from employment without a severance pay despite the prescription of section 87 of the Employment Act. The employee has been awarded damages for the loss of income and costs for the litigation suit. Explain the tax treatment of such compensation receipts. (5 marks) (Total 25 marks) compliance of GEAL has stated that there might be a tax liability as a result of capital gains. Required: As the adhoc tax advisor to GEAL, draft a memo to the managing director of GEAL. advising on: (i) the different circumstances under which a disposal of a business asset can be considered to occur. (10 marks) (ii) whether GEAL has made any capital gains and the tax treatment of any such transactions: (15 marks) (b) As part of the strategic plan, GEAL has identified a local independent company called Leafy Technology Limited (LTL), specializing in biogenetic research and development. LTL owns various genetics analytical software used by laboratories across the country. It also owns assets such as patents to various drugs that are licensed out and others listed in the asset schedule. Leafy Technology Limited Profit and Loss statement for 2018 Shs 'million' Revenue 5.908 Cost of sales (3.900) Gross profit 2.008 Other operating income - Royalties 24.0 2.248 Operating expenses (1.099) Operating Loss Finance cost (82) Profit before tax 1.223 Income tax expense 250 Loss for the year 973 Other comprehensive income - Total comprehensive income for the year 973 Question 1 (a) Genetrix East Africa Limited (GEAL) is a Kenyan incorporated research and development company dealing majorly in human drugs and vaccines. in the second quarter Board of Directors' meeting in July 2016. a strategic decision was taken to expand operations into Uganda and reorganize the company's operations in the region. Furthermore, to ensure proper supervision of operations, the executive directors would move to Uganda to oversee operations while the non-executive directors would attend management meetings in Kampala. GEAL, in 2016. filed a 20 year patent over a pain relieving drug called Strung with Kenyan and Ugandan Registry Services Bureaus. It also acquired shares in two companies that had received licenses from GEAL to manufacture Sfruno; Cube Pharmaceuticals Uganda Limited. a Ugandan resident company and Tan Drugs Limited. a Tanzanian resident company. As per the plan, at the start of 2017. the directors moved to Kampala and commenced operations. The Company registered its operations in Uganda as a foreign incorporated entity with the Uganda Registry Services Bureau. GEAL acquired a strategic piece of land overlooking lake Victoria with a bird's eye view of the city. in March 2017 for UShs 645,250,000 and commenced construction. At the end of December 2017, the company had completed the development of the Laboratory and medical research institute that would offer state of the art facilities in research and training at a cost of UShs 3bn. At the start of 2018, the Uganda People's Defense Forces. approached GEAL's management and stated that the land being developed was of significant concern to national security and would be developed into an anti- aircraft National Sonar monitoring site. GEAL was paid UShs 5,650,000,000 as compensation based on a government valuation. The computation took into account total costs incurred to date and revenue lost for the period under set up and monitoring. As at the end of the year of income in December 2018. GEAL had utilized UShs 4,150,000,000 to acquire and set up a similar facility in the quiet outskirts of Kira, Wakiso district. As part of a tender application process to supply the Ministry of Health with the pain relieving drug. GEAL's directors have requested for a transactional tax clearance certificate from URA. The tax examiner assigned to review the At the end of the year the SACCO will pay interest on the contributions of its members from the 10% return. (5 marks) (ii) To setup a non-governmental organisation (NGO) registered by the (b) (0) Ministry of internal affairs. This body is to be open to the public. It will serve the farmers of the area and any other willing participants. The N60 will collect contributions from the farmers and these would be utilized to fund the raw materials and capital expenditure. The collections from the farmers will be deposited in the local bank accounts and interest collected will fund the administrative costs of the NGO. Using a government grant the NGO would also be responsible for the construction of a two storeyed Warehouse and office building that would store the produce and serve as offices for the operations of the NGO. This building will also generate rental income from local commercial bank branches that have shown interest in renting the property. The NGO would also be responsible for the procurement, monitoring and payment of a marketing agency which will seek out market for the farm produce which is majorly coffee and Cocoa. Revenues from produce sale would be shared in proportion to the supplies made from the farmers. The N60 will not deduct any fees off the farm sales (5 marks) Advise the farmers on the key requirements to get income tax exemption as a non-governmental body. (5 marks) Recently one of the farmers sold a piece of land in Wakiso district to a real estate company that intends to set up a housing estate in that area that was recently acquired. This is the second piece of land that was acquired by the same company. Following a recent spot review, URA has written to the farmer requesting for a declaration of business income related to the disposal of land. Required: As the tax consultant explain the critical indicators of a trading activity. (10 marks) (Total 25 marks) LTL statement of financial position as at 31 December 2018 Assets Shs 'million' Cash and bank balances 560 Other assets 800 Stock 1,200 Patents 2,900 Property and equipment 8,700 Land and Buildings 5,978 Net Deferred Tax asset 38.670 Total Assets 58,808 Liabilities Loans 6,000 Current income payable 34 Other liabilities 590 Total Liabilities 6,624 Net assets Equity Ordinary share capital (1 million shares) 2,500 Retained earnings 49,684 Total Equity 52, 184 Total Equity and Liabilities 58,808 Required: As part of a due diligence on LTL, draft a memo to the GEAL Executive director, stating the tax implications if: (i) GEAL buys the shares of LTL at UShs 3500 per share with a view to merge the two companies (5 marks) (ii) GEAL buys the tangible and intangible assets of LTL for a direct cash payment (5 marks) (iii) GEAL is to set up a new company, Genetrix Holding Company that acquires LTL's 100% shareholding for 20% shareholding in GHC. GHC would also acquire 100% shareholding of GEAL for 80% shareholding in GHC. (5 marks)(d) GEAL shareholders are both institutional and individual shareholders. The company is 42% listed on the stock exchange while the other 58% is owned by a company limited by shares called Tech-Genetrix based in Mauritius. The listed shares are owned by both companies and individual shareholders from Uganda and Mauritius. The company is intending to pay dividends of UShs 10 billion to its shareholders using the ownership percentages below; Details Ownership We) 1 Tech-genetrix 58 2 Ugandan individuals 14 3 Ugandan companies 12 4 Foreign individuals 6 5 Foreign companies 10 Due to the planned expansion into Uganda. the directors are considering a bonus issue to raise more share capital. In this proposal. each shareholder shall be entitled to three shares for every two held before the issue. Required: As the adhoc tax opinions expert; (i) Compute the withholding tax that is payable to the different categories of share holders (5 marks) (ll) Draft a memo to the CFO of GEAL explaining the proposal by management and its tax implications. (5 marks) (Total 50 marks) Question 3 Health Hospital Uganda Limited (HHUL) is based in Luzira, a Kampala suburb. The company specialises in critical heath emergencies and specialised health care. HHUL is licensed by the Ministry of Health and is currently undergoing its annual statutory audit for the year ended 31 December 2018 The following are extracts of the draft financial statements for HHUL, for the year ended 31 December, 2018. Statement of Comprehensive Income Notes Shs '000' Revenue - Medical service (i) 10,608,978 Grants 494,000 Investment income - interest 50,000 Operating expenses Administrative costs a. 7,174,000 Supplies and services costs 3,067,000 Finance cost 840.000 Profit before tax 71,978 Income tax expense 25.000 Profit after tax 45,978 Other comprehensive income - Total comprehensive income for the year Notes to the Financial Statements (extract): (a) Administrative costs Shs '000' Salaries and wages 5,276,000 Annual lease payments for Hospital plot 1,100,405 Depreciation and Amortisation 398,528 Penalty from National Drug Authority 12,000 Provision for litigation 387.057 7.174.000