UK TAX LAWS

The following information regarding the year ending 31 March 2020 has been extracted from client files and from meetings with the directors of Amber Plc.

Amber Plc has 60% of the shares of Top SA, 80% of the shares in Pat Ltd and 90% of the shares in an American subsidiary Rose Inc. Rose Inc owns 75% of Tim Ltd and 70% of Spot Ltd. Pat Ltd has 80% of Rio Ltd. Top SA is resident in the tax haven of Utopia.

All of the group companies are UK resident with the exception of Rose Inc that is resident in America and Top SA that is Utopian resident. Every company in the group apart from Top SA operates in the UK and in addition, there are three American branches. The American branches are owned by Spot Ltd, Rio Ltd, and the American company Rose Inc.

America currently charges a corporation tax rate of 30% and the tax haven of Utopia charges only 5% taxation. Neither America nor Utopia are in the European Economic Area (EEA).

Top SA has a taxable profit of 600,000 for the year ended 31 March 2020.

Amber Plc results year ended 31 March 2020

The income statement shows a profit of 11,760,200 after accounting for the following items:

Net Interest receivable (Note 1) 200,000

Cost of goods from Rose Inc (Note 2) 335,000

Sales to Top SA (Note 3) 440,000

Net foreign rental income received (Note 4) 750,000

Note 1

Accrued loan interest receivable 228,000

Bank overdraft interest payable (8,000)

Debenture interest payable (for German factory) (20,000)

200,000

Note 2

Amber Plc received goods from Rose Inc at a mark-up of 20%. The normal mark-up charged to other customers is 35%.

Note 3

Sales to Top SA are charged at a 10% mark up on cost when Amber Plcs normal mark-up is 35% to other customers.

Note 4

The rental was received in respect of a German factory that was surplus to trade requirements. This was received net and suffered withholding tax of 25% in Germany.

In addition to the above Amber Plc has not yet accounted for the following capital transactions:

• In May 2019, Amber Plc sold an office for 983,580 to Pat Ltd. The office had been acquired by Amber Plc in June 1996 for 194,680 and has always been used for trade purposes.

• In October 2019 Amber Plc sold, to an independent third party, a factory for 320,500. It was acquired in April 2007 for 365,800.

• In March 2020 Amber Plc sold its entire holding in Rose Inc to Pat Ltd for 1,120,000. Amber Plc had acquired Rose Inc in February 2002 for 1,250,000.

Indexation Allowances (IA) that may be relevant to December 2017 are:

IA from June 1996 0.331

IA from April 2007 0.651

IA from February 2002 0.872

Visiting Directors

Two staff domiciled in America are visiting the UK to work for Amber Plc in the tax year 2020/21 as follows:

(i) Maura arrived in the UK on 1 May 2020 and will remain on secondment in the UK until 31 March 2021. Maura will return home twice during the secondment, each visit being for a period of 10 days. She will rent her home in America for 3,000 per month and does not intend to remit this income to the UK.

(ii) Christos lives with his wife in New York but will be visiting the UK regularly and Amber Plc will rent a flat for his use. His planned visits are:

* 9am 15 April 2020 to 11pm 13 June 2020

* 9am 1 August 2020 to 8pm 1 November 2020

* 10am 10 February 2021 to 9am 31 March 2021

You are required to:

Write a report for Amber Plcs board of directors covering the following areas for the group.

Marks will be awarded for each requirement as follows:

1. Draw a diagram representing the group structure clearly marking on the diagram the global capital gains tax group.

For each of the three American branches explain why they are either included in or excluded from Amber Plcs global capital gains tax and loss relief groups. (maximum word count 180 words)

(9 marks)

2. Explain how the profits of Top SA may be included in the UK tax charge. You should discuss the Controlled Foreign Company (CFC) rules and how and why they may be applied to Top SA. (maximum word count 100 words)

(5 marks)

3. Explain the tax treatment of the capital transactions in Amber Plc for the year ended 31 March 2020 stating any available reliefs that Amber Plc may be able to claim.

(maximum word count 120 words)

(6 marks)

4. Calculate Amber Plc's corporation tax liability for the year ended 31 March 2020.

(14 marks)

5. Explain the VAT consequences of sales made by the UK group companies to Rose Inc. If the American branch of Rose Inc sells goods to Tim Ltd explain the UK VAT consequences. (maximum word count 100 words)

(5 marks)

6. Advise the visiting directors on their UK tax residence status in 2020/21 and explain how any overseas income will be taxed in the UK. (maximum word count 160 words