Questions

(ii) Discuss direct and indirect charging mechanism of headquarter services to its affiliates in a multinational group, providing examples. (6 marks) (iii) Discuss allocation keys that could be applied in the context of the Attar group's intra-group service activities. (5 marks) (b) You have been engaged as a tax advisor, by representatives of a large Ugandan e-commerce company seeking to expand internationally. The company plans to commence some significant research and development projects in relation to its software and database systems. Required: Provide tax advice in relation to the concept of cost contribution agreements, including application of the arm's length principle. (4 marks) (Total 25 marks) Question 2 BADCO International (BI) is a Ugandan branch of a company headquartered in the Netherlands. The management of BI is not satisfied with the computation of branch profits tax on repatriated income by the Uganda Revenue Authority. The director finance and administration. Mrs Joan Obore. has preferred to seek your advice as a tax advisor. Required: (a) Citing relevant examples. explain to Mrs Obore the circumstances under which a taxpayer would enter into a request for Mutual Agreement Procedure (MAP). (5 marks) (b) Advise Mrs Obore of the mechanism via which the tax authorities may engage in relation to MAP. (5 marks) (c) Describe to Mrs Obore: (i) six principal benefits and/or potential problems. to both tax administration and taxpayers. which may be associated with a Mutual Agreement Procedure. (9 marks) (ii) the other dispute resolution mechanism available to BI and the circumstances under which it may arise. (6 marks) (Total 25 marks) Question 3 At the recent world economic forum in Davos. Switzerland. the minister of finance. planning and economic development met his counterpart from Austria. The two ministers are keen to foster economic cooperation in the form of trade and investment between the two countries. Through their interaction, they noted that Uganda and Austria do not have any form of international agreement between them. If the two countries were to cooperate. it is important that they sign a Double Taxation Agreement (DTA) first and foremost before any other bilateral agreements. The ministers took this away as one of the priorities on their to-do list. Back home in Kampala. the minister summoned his director of economic affairs and entrusted him with the task. You are a senior economist in the tax policy department of the ministry. (c) The current managing director (MD) of OUL is of Indian origin with his wife and children in Ahmedabad, Gujarat, India. He was hired on a three year contract starting June 2018 when he came to Uganda. His employment contract accords him annual leave of one month every year plus a return ticket to Ahmedabad to see his family. He is interested in knowing where his tax residence is. Required: Advise the MD of OUL on how his tax residence will be determined. (10 marks) (d) As part of its software business, OUL vends anti-virus software developed by PIL. The software is downloaded onto a compact disc (CD) from the PIL server in India, which OUL then sells to its customers issuing with it a license key. In the alternative, customers can access the PIL website and download the anti-virus after making online payment to OUL. The volume of anti-virus business has grown significantly over the years that PIL anti-virus software enjoys an estimated 25% of the market share. It so happens that more than 80% of the anti-virus software sold is done online. Required: (i) Advise the finance director of any tax implications the software business might create, citing case law as an example. (6 marks) (ii) Explain to the finance director the proposals put forward by the BEPS Agenda to address the taxation of situations like in the scenario above. (6 marks) (e) Due to the success of OUL's business over the past few years, PIL receives an offer from Itsol India Limited (IIL), a company tax resident in India, to fully purchase all its shares in OUL. The offer is very good that PIL is seriously considering it. Required: Advise OUL and PIL management on the tax implications of the impending sale and what precautions can be made to make sure it is fully tax compliant. (10 marks) (Total 50 marks)Required: (a) Advise the director on the three main model tax treaties used by national negotiating parties. (6 marks) (b) Advise the director on the: (i) most suitable model tax treaty to use in the DTA between Uganda and Austria. highlighting an example of why it is the most suitable. (5 marks) (ii) process through which the DTA will be effected to aid in his estimate of timelines (7 marks) (iii) the minister's concerns on the fact that some provisions of the DTA will be inconsistent with the Income Tax Act which he mentions to the director and the treatment of a situation where the DTA is inconsistent with the Income Tax Act. (2 marks) (c) Explain the term \"treaty override\" and when it is necessitated, citing relevant examples of its application in Uganda. (5 marks) (Total 25 marks) Question 4 (a) The Attar group is a multinational group of companies headquartered in Johannesburg. South Africa. Attar Mining Company Limited (Attar) is a private company incorporated in Uganda and is a member of the group. Attar does not have the necessary technical resources in Uganda to independently execute a mining proiect to production. It therefore relies on the group for technical and financial support. The group has a global policy in relation to intra-group services that stipulates a cost plus 5% fee for all services to be charged between all entities. Functions performed under the intra-group services policy include accounting, finance and reporting, human resources. information technology. research and development. marketing and sales; and engineering design. You have been contracted as an independent tax advisor to Attar. Required: (i) Identify potential chargeable and non-chargeable services for the Attar group. and explain the rationale for each charge. (10 marks) Question 1 Olgar Uganda Limited {0UL) is a 100% owned subsidiary of Polgar International Limited (PIL), which is tax resident in India. OUL provides a range of information technology (IT) services to its clients who include IT infrastructure installations. software applications, networks. supply of IT equipment. and data storage. OUL is financed by its parent company PIL in India through corporate debt financing. Financing is got cheaply in India by PIL which it then lends to OUL. Depending on the amount of funding required. if not significant. PIL at times uses internal funds to loan to OUL. Due to its growing business. OUL has encountered a number of tax compliance issues with regards to its transactions and overall business. It is because of this that the managing director decides to hire you as their tax manager. As the tax manager you handle all tax related aspects and Uganda Revenue Authority (URA) liaisons. You are responsible for both customs and domestic tax compliance. Being newly recruited. the finance director has requested you to review the following concerns: (a) Being in the IT industry which is global and transboundary in nature, the finance director is concerned by the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion Profit Shifting (BEPS) storm. Required: (i) Explain if there is any particular BEPS action point that would impact the financing from the parent company if adopted by domestic legislation and the risks the action is meant to address. (6 marks) (ii) Describe the changes. if any. the adoption of the above BEPS Action Point has had on the Uganda Income Tax Act. (6 marks) (b) The finance director informs you that they have been presented with an option of securing loan financing from Exim Bank in China. Explain the tax considerations you would make in comparing the two available financing options. (6 marks)