Bella Inc$$s accounts reveal the following:

$$000$

Trading profits $5,000$

Interest received $1,500$

Capital gain on sale of property $1,000$

$7,500$

Inistanian corporation tax $(900)$

Net profit $6,600$

Proposed dividend $(3,500)$

Retained profits $3,100$

Trading profit is arrived at after deducting:

Depreciation of equipment $400$

Business entertaining $500$

The company$$s trading profits arise from acting as a distributor. Goods are

received in bulk shipments in Inistania by Bella Inc, which arranges for them to

be despatched in small consignments as instructed by its customers. Most of

the goods dealt with by Bella Inc are sent to it by Black Ltd$.$

The interest received is on deposits with a bank located in the neighbouring

country of Ruritania. The $$1,500,000$ is after the deduction of Ruritanian

withholding tax of $$500,000.$ Inistania operates the exemption method of double

tax relief.

Page $8$ of $8$

Inistania does not charge tax on capital gains.

Inistania permits the deduction of accounting depreciation for tax purposes. If

Bella Inc were to compute UK capital allowances for this period, the deduction

would be $$600,000.$

$($ii$)$ Compute the UK chargeable profits. The UK does not apply CFC charge

to capital gains of the overseas company.

$[10$ marks$]$

$($iii$)$ Assuming that the UK tax rate is $28\%$ and none of the exemption tests

is satisfied, calculate the charge to tax on Black Ltd$.$