CAMBODIAN TAXATION EXAM PAPER QUESTIONS. Time allowed. Reading and planning: 15 minutes. All FIVE questions are compulsory and MUST be attempted.

Transcription

1 = EXAM PAPER QUESTIONS Time allowed Reading and planning: 15 minutes Writing: 3 hours All FIVE questions are compulsory and MUST be attempted. Tax rates and rebates are listed on pages 2 and 3. CAMBODIAN TAXATION Page 1 of 12

2 SUPPLEMENTARY INSTRUCTIONS 1. Calculations and answers need only be made to the nearest USD or Riel. 0.5 and above is to round up. 2. All apportionments should be made to the nearest month. 3. All workings should be shown. 4. All computations should indicate, by the use of 0, any item of income or expense that is tax exempt, not taxable or does not require adjustment, as appropriate, so that marks can be given accordingly. TAX RATES AND REBATES The following tax rates and rebates are to be used in answering the questions: Value Added Tax (VAT) Standard rate: 10% Export: 0% Exempt supplies: Nil (Input taxed supplies) Tax on Profit (ToP) Standard rate: 20% Tax holiday: 0% Withholding Tax (WHT) Interest income from fixed term deposit with a local bank: 6% Interest income from non-fixed term deposit with a local bank: 4% Tax on Salary (ToS) Rebate for dependent children and non-working spouse: Riel 75,000 per person, per month. ToS rates for residents Monthly taxable salary (Riel) for amounts from: Cumulative tax (Riel) at top of band Rate 0 500, % 500,001 1,250,000 37,500 5% 1,250,001 8,500, ,500 10% 8,500,001 12,500,000 1,362,500 15% 12,500,001 and up 20% ToS rate for non-residents Flat rate: 20% Page 2 of 12

3 Tax on Fringe Benefits (ToFB) Flat rate: 20% Public Lighting Tax Rate at 3% Accommodation Tax Rate at 2% Page 3 of 12

4 ALL FIVE questions are compulsory and MUST be attempted Question 1 Yellow Brand Ltd. (YBL) is a real regime taxpayer having two business divisions since 2005: (i) Hotel Division and (ii) Golf Course Division. The income statement (extracted) of YBL for the year ended 31 December 2011 is as follows: Hotel Golf Course Division Division Total USD USD USD Operating profit/(loss) (Note 1) 135,000 (211,945) (76,945) Other income, as follows: Bank interest (Note 3) 5,000 Loan interest (Note 4) 2,500 Income from rental (Note 5) 31,200 31,200 Dividend (Note 6) 15,000 Interest payable (Note 7) (45,500) (45,500) Profit/(loss) before taxation (68,745) Notes: 1. Operating profit/(loss) Accounting depreciation of USD85,660 has been deducted to arrive at the total operating loss of USD76, Assets On 1 January 2011, the tax written-down values for tax purposes (except for Class 1 assets) of assets were as follows: Class 2 - USD36,900 Class 3 - USD57,850 Class 4 - USD5,700 The historical cost of Class 1 assets at 1 January 2011 was USD1,190,000. Page 4 of 12

5 The following transactions took place during the year 2011: Cost/(Proceeds) USD 2 February Purchased a new car 12,000 3 March Purchased furniture 5,000 5 March Sold an old car (2,000) 22 June Sold all assets in Class 4 (3,650) 19 September Purchased new computer software 2, December Purchased a set of sofas 1, Bank interest The gross interest income of USD5,000 was received from non-fixed term deposits that YBL placed with local banks. The banks have withheld Withholding Tax (WHT) from the gross amount before paying the interest to YBL. 4. Loan interest The loan was made to a third party individual and earns gross interest income of USD2,500 per annum. 5. Income from rental YBL leases office space in the golf course to two VAT-registered companies. The total cash received is less than the recorded gross rental income above due to the fact that the lessees have withheld WHT before making payments to YBL. 6. Dividend The net dividend of USD15,000 has been paid by YBL's subsidiary based in Thailand. The subsidiary has withheld 10% WHT on the gross dividend amount and remitted the tax to the Thai tax authority. 7. Interest payable YBL borrowed at a fixed interest rate of 3.5% per annum from its sister company (a Cambodian tax resident) on 1 February The balance of the loan as at 31 December 2010 was USD1,300,000 and the balance remained at USD1,300,000 as at 31 December The interest payment is due in August of the year following the year in which the interest expense is incurred. YBL has accrued the interest expense and WHT liability separately, as YBL has to absorb the WHT cost. The WHT expense was included in operating costs. The accrued interest expense for year 2010 to the above sister company was added back in the 2010 ToP calculation. Page 5 of 12

6 8. Insurance compensation YBL received insurance compensation from its insurer of USD200,000 on 31 December 2011 for hotel division inventory that was damaged by fire. The cost of damaged inventory of USD200,000 was charged to the cost of sales in 2011; however, YBL has not yet recorded the insurance compensation in Hotel Division The shareholder is considering listing YBL on the Cambodia Securities Exchange (CSX). However, the profitability of the Golf Course division is uncertain and this could result in a loss in the consolidated profit and loss for some years in the future. The management is confident that the hotel division will continue to be profitable for the foreseeable future (i.e. at least for the next three to five years). The shareholders intend to set up a new entity (i.e. Yellow Brand Hotel Plc YBHP ), owned by the same shareholders of YBL and transfer the relevant assets of the hotel division from YBL to YBHP, so that the new entity can be listed on the CSX in the future. Assume that the market value of the transferred assets is USD 9 million, including brand name and know-how, and other goodwill. The net book value and tax written-down value of the transferred assets are USD 5 million and USD 4 million, respectively. 10. Tax loss brought forward YBL has the following unutilised tax losses brought forward: Year USD USD USD USD USD USD Tax loss 30,000 Nil Nil 5,000 10,000 Nil There were no changes of ownership or business objectives during these years. Required: (a) Further to Note 9, briefly advise YBL s management on three key tax implications in respect of the intended spin-off of the hotel division (including the calculation of any applicable tax). Notes: i. In answering this part of the question you are not expected to take into account the information provided in notes (1) to (8), and (10). ii. You should cover only three key tax implications. (12 points) Page 6 of 12

7 (b) Compute the Tax on Profit (ToP) liability, including the calculation of the tax depreciation and all other workings, in USD for YBL for Notes: i. Your computation should start with the total loss before taxation, include all of the items referred to in notes (1) to (10) except note (9), and indicate, by the use of Nil or 0, where there is no adjustment needed. ii. Assume that YBL is exempt from Minimum Tax and is not required to pay monthly Prepayment of ToP. YBL and YBHP are subject to Tax on Profit at 20%. iii. Ignore Article 27 (WHT is a final tax). (18 points) (30 points) Page 7 of 12

8 Question 2 App Tour Co., Ltd (ATL) is a company registered with the General Department of Taxation in Cambodia and operates under the real regime tax system. The senior tax staff, Sovanna Them, was laid off in December 2011, leaving you to complete the calculation of the Tax on Salary (ToS) and Tax on Fringe Benefits (ToFB) for the month of December Below is the information available: No. Employee's name Monthly basic salary Allowance (Note 1) Insurance (Note 2) Other (Note 3) USD USD USD USD 1 Reaksmey Hol Reaksa Sok Ravy Sao 2, Ray Levi 3, ,000 1,000 The December 2011 exchange rate for ToS and ToFB is USD 1 = Riel 4,002. Note 1: Flat Allowance During December 2011, the four employees were assigned to work in Preah Sihanouk province for a period of time. According to ATL's policy, there is no requirement for each staff to maintain the actual receipts or invoices to claim an allowance. Under the policy, the allowance is a flat rate of USD10 per day for accommodation and meals. Assuming the allowance to government officers is similar to the above. Note 2: Insurance ATL paid premium for health insurance for all staff including the four employees listed above. In addition to this health insurance, ALT also paid the vehicle insurance for Ray s private car, at an additional cost of USD500. The payment for insurance is made in December every year. In December 2011, Ray lost his newly bought private car (cost at USD24,000) and received USD25,000 compensation from the insurer in the same month. Note 3: Other This represents payments for apartment rental for Ravy and Ray. ATL pays the monthly rental fee directly to the lessor and withholds WHT, which it remits to the tax authority. Note 4: Pension ATL has a policy that each employee is entitled to an additional pension contribution of 15% of their monthly salary. Page 8 of 12

9 Note 5: Educational support Reaksmey Hol is an accountant of the company; hence, ATL paid for her ACCA study in the amount of USD900 in December ATL paid school fees for Ray Levi s son of USD1,500 in December 2011 directly to the school. In January 2012, 50% of the school fees were deducted from Ray s January salary because ATL supports only 50% of the total school fees. Please note that ATL records salary advance the 50% school fee in December Note 6: Compensation for lay-off Sovanna Them was employed by ATL for more than 12 years. On 31 December 2011, he was laid off because of inappropriate business conduct. His monthly salary was USD2,500 per month. Assume that the indemnity for lay-off calculated according to Cambodian labour law for him is USD15,000. Sovanna received the following income from ATL in December 2011 in addition to his salary: - Payment of indemnity for lay-off: USD19,000 - Unutilised annual leave: USD500 - Overtime worked in November 2011: USD300 - Reimbursement of costs incurred attending business conference in Singapore: USD2,000 - Reimbursement of accommodation costs including utilities and household personnel: USD1,200. ASSUMPTION Under the tax regulations, the term Tax on Salary refers to both Tax on Salary and Tax on Fringe Benefits. For the purposes of this exam, the use of the term Tax on Salary refers to Tax on Salary alone. Tax on Fringe Benefits should be written as Tax on Fringe Benefits. Required: (a) Compute the ToS and ToFB liabilities in Riel for each of the four employees and state when these taxes are due for payment. (16 points) (b) Compute the ToS and ToFB liabilities for Mr. Sovanna Them in Riel. (7 points) (c) If Sovanna Them is subsequently hired as an independent consultant with a gross monthly fee of USD1,500 per month, what is the tax implication for ATL. (2 points) (25 points) Page 9 of 12

10 Question 3 You are currently a tax accountant and responsible for preparing the monthly tax returns for November 2011 for Dream Hotel, a real regime taxpayer. Below is the information provided to you by other accounting staff. Revenues: USD Room services, inclusive of ACT 280,300 Fitness club, inclusive of VAT 2,500 Food and non-alcoholic drinks, inclusive of VAT 3,800 Beer and wine, inclusive of VAT and PLT 2,500 Cigarettes, inclusive of VAT and PLT 1,100 Expenses: USD Advertising 25,000 Outsourced laundry services ( ) * 2,250 Fixed-line telephone, inclusive of VAT 600 Food purchases ( ) * 1,800 Non-alcoholic drinks, inclusive of VAT 12,350 Groceries 500 New beds, inclusive of VAT 2,400 Materials for room decoration 5,600 Restaurant improvement services ( ) * 950 Notes: 1. All amounts are exclusive of VAT, unless otherwise stated. 2. ( * ) Represent payments made to non-vat registered taxpayers. Other than these, all payments were made to VAT-registered taxpayers and supported by VAT invoices. 3. PLT = Public Lighting Tax 4. ACT = Accommodation Tax Required: (a) The cashier overcharged guests for room services, the excess charges amount to USD850, inclusive of all taxes. The invoice that includes the excess charges was declared in the September 2011 tax returns. The accountant wishes to correct the invoice and refund the overcharged amount to the guests in November Advise the accountant on how to correct the incorrect invoice from a tax perspective. (2 Points) (b) Taking into account the answer to question (a), compute the monthly tax liabilities for Dream Hotel for November 2011, such as the Accommodation Tax, Public Lighting Tax, Prepayment of Tax on Profit and Value Added Tax. Dream Hotel does not have VAT credit brought forward. (18 points) (20 points) Page 10 of 12

11 Question 4 (a) State the criteria for valid documents in order for the input Value Added Tax (VAT) on importation to be claimed. (5 points) (b) According the Prakas on Tax on Profit, state four kinds of payments that are exempt from Withholding Tax. (4 points) (c) Briefly explain when a taxpayer is required to register with the tax authority as a VAT registered taxpayer. (3 points) (d) Explain the difference between a zero-rated VAT supply and a VAT-exempt supply. (3 points) (15 points) Page 11 of 12

12 Question 5 Zigzag Co. is a company based in China. Zigzag Co. has assigned four marketing staff to Cambodia to do market research about the Cambodian people's favourite drink. During the year ended 31 December 2011, they visited Cambodia three times: (i) from 1 January to 28 February, (ii) for the whole month of May and (iii) from 15 July to 30 October. In October 2011, they were contacted by local wholesalers who wish to import Zigzag Co.'s products from China to Cambodia. During the visit, they signed a contract with the wholesalers in Cambodia on behalf of Zigzag Co. Required: (a) Based on the above scenario, discuss the Permanent Establishment issue in respect of Zigzag Co. (6 points) (b) Provide brief comments on the Tax on Salary implications of the four marketing staff. (4 points) (10 points) Page 12 of 12