Cima F1 Buisness Taxation Chp 1

Front 1

International taxation

What is:

Corporate residence

And

Double taxation

Back 1

Back (Definition)

Front 2

The government will use tax to stimulate one sector of the economy- give example

Back 2

Allowances on capital expenditures may help develop or boost the manufacturing sector

Front 3

Give an example of how the government can use tax to control a part of the economy

Back 3

High taxes of things such as tobacco or alcohol- this can be used to put of consumers - both lead to a strain on the NHS etc

Front 4

In wealth of nations (Adam Smith) it is proposed that good tax should have the following characteristics:

Back 4

(CAFE)

Convenient- easy to pay/ simply

Absolute- certain not arbitrary, this means rules can’t change or numbers just pulled out of thin air

Fair - reflect a persons ability to pay

Efficient- low collection costs

Front 5

The 3 major principles of good tax policy are :

Back 5

Equity - a good tax should be fairly levied between one taxpayer and another

Efficiency- a good tax should be cheap and easy to collect I.e PAYE used to collect tax at source on salaries and wages (direct tax)

Economic effects- a good tax should consider the way in which tax should be collected

Front 6

What’s is good tax: the American institution of certified accountants (CPA) lists the following principles that a good tax policy should have:

Back 6

Appropriate government revenues- determining the amount of tax revenues and date of collection

Convenience of payment

Certainty

Equity and fairness

Economy in collection

Economic growth and efficiency

Minimum tax gap - the difference between actual collection and the amount due

Neutrality

Simplicity

Transparency and visibility

Front 7

A tax is either :

Back 7

Direct tax or indirect tax

Front 8

Direct tax and indirect tax are:

Back 8

Back (Definition)

Front 9

The incidence of tax is the distribution of the tax burden I.e who is paying the tax

This incidence can be be spilt into two elements :(which are?)

Back 9

Formal incidence

Actual incidence

Front 10

The incidence of tax is the distribution of the tax burden I.e who is paying the tax

This incidence can be be spilt into two elements :(which are?)

Back 10

Formal incidence

Actual incidence

Front 11

What is formal incidence ?

Back 11

This is the person who has direct contact with the tax authorities I.e who is actually legally obligated to pay the tax I.e a accountant paying VAT to HMRC

Front 12

The incidence of tax is the distribution of the tax burden I.e who is paying the tax

This incidence can be be spilt into two elements :(which are?)

Back 12

Formal incidence

Actual incidence

Front 13

What is formal incidence ?

Back 13

This is the person who has direct contact with the tax authorities I.e who is actually legally obligated to pay the tax I.e a accountant paying VAT to HMRC

Front 14

Actual incidence is : (sometimes called effective incidence)

Back 14

This is the person who actually ends up bearing the cost of the tax

I.e customers buy products where sales VAT has been added already

Front 15

Taxable person is :

Back 15

The person accountable for the tax payment I.e individual or entity

Front 16

Competent jurisdiction is?

Back 16

A taxable person normally pays tax in the country of origin. Competent jurisdiction is the tax authority that has the legal power to assess and collect the taxes - usually the combined responsibility of the central government and local authorities within the country. Tax law is enforceable by sanction, fines or imprisonment

Front 17

What is hypothecation ?

Back 17

Means that certain taxes are devoted entirely to certain types of expenditure I.e road tax is used to maintain and fix roads. London congestion charge is used to pay for transport for the area

Front 18

What is the tax gap?

Back 18

The is the gap between the tax that theoretically collectable and the amount that is actually collected. Tax authorities will aim to minimise this gap

Front 19

Incidence of tax is

Back 19

The distribution of the tax burden I.e who is paying the tax

Front 20

Tax rate structure

3 types of tax which are ?

Back 20

Progressive taxes: these take an increasing proportion of income as income rises i.e tax bands 20-40-50%

Proportional taxes: these take the same proportion of tax as income rises i.e corporation tax

Regressive taxes: they take a decreasing proportion of income as income rises i.e NI contributions 11% then 1 %

Front 21

Source of tax rules are :

Back 21

Legislation produced by a national government of the country I.e finance acts in the U.K.

precedents based on previous legalisation. Tax authorities also issue interpretations I.e tax bulletins in the U.K./ statements of practice of tax authorities

directives from international bodies such as the European Union guidelines on VAT

Agreements between different countries such as double tax treaties I.e U.K./US double tax treaties

Front 22

Tax bases are classified to their tax base (what is being taxed)

These bases are: (hint CIA)

Back 22

Consumption- I.e sales tax

Income or profits - income and corporation tax in the U.K.

assets - I.e capital gains tax

Most countries separate different types of income into categories and have a set of rules to determine how that income will be taxed

Front 23

What is the standard proforma for calculating tax on trading income

Back 23

Back (Definition)

Front 24

Rules for what is allowed and disallowed for tax purposes

Back 24

Back (Definition)

Front 25

What is capital gains tax?

Back 25

A capital gains tax is a tax on the profit realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.

Front 26

What is a tax treaty ?

Back 26

This a treaty between two countries and it is to stop someone paying tax twice i.e someone might pay tax in the country they earned the tax but also tax in their country of residence

So the double tax treaty is to relief one side of this

Front 27

When an asset is sold any accounting profit or loss must be replaced with the tax equivalent known as the balancing charge or balancing allowance

Back 27

A balancing allowance (BA) - a tax loss on disposal of asset

A balancing charge (BC) - a tax profit on disposal of asset

Front 28

The new extended proforma for profit or loss due to sale of an asset

Back 28

Back (Definition)

Front 29

The new extended proforma for profit or loss due to sale of an asset

Back 29

Back (Definition)

Front 30

Workings for calculating if a profit or loss has occurred on the sale of an asset

Back 30

Back (Definition)

Front 31

What is claim loss relief

Back 31

Back (Definition)

Front 32

There are 3 main methods of giving double taxation relief these are: (TED)

Back 32

Back (Definition)

Front 33

Types of overseas operations

The features of operating as a subsidiary are:

Back 33

Back (Definition)

Front 34

The features of operating as a branch are:

Back 34

Back (Definition)

Front 35

Types of foreign tax

There are two types which are:

Back 35

Withholding tax

Underlying tax

Front 36

Withholding tax is ?

Back 36

Back (Definition)

Front 37

Underlying tax is?

Back 37

Back (Definition)

Front 38

What is the OECD model for tax convention?

Back 38

Back (Definition)

Front 39

What is transfer pricing?

Back 39

Back (Definition)

Front 40

What is the 1st rule of transfer pricing?

Back 40

Back (Definition)

Front 41

What is the second rule of transfer pricing?

Back 41

Back (Definition)

Front 42

Admin - record keeping to satisfy tax requirements

What records need to be kept for corporate tax and sales tax?

Back 42

Back (Definition)

Front 43

Admin - record keeping to satisfy tax requirements

For :

Overseas subsidiaries

Employee tax

Minimum retention of records

Payment of tax

Back 43

Back (Definition)

Front 44

Powers of tax authorities

The revenue authorities have various powers to impose penalties and interest on late payment of tax. They have the powers to do the following: (RREEP)

Back 44

Review and query filed returns

Request special reports if they believe information to be incorrect

Examine records from previous years (up to 20 years)

Enter and search entity’s premises and seize documents

Pass on information to foreign tax authorities

Front 45

What is tax avoidance and tax evasion ?

Back 45

Back (Definition)

Front 46

Chapter 1 summary

Back 46

Back (Definition)

Front 47

What is corporation tax and income tax ?

Back 47

Corporation tax is the tax a business pays on its net profits and income tax is tax paid on an individuals profit or income (normally taken by PAYE method )

Front 48

How is the tax to pay recorded in the accounts?

Back 48

DR income tax expense account (SPL)

CR income tax current liabilities (SOFP)

Front 49

What was the net amount if £140 had been received after adding 20%?

What was the net amount if £140 had been received after deducting 20%?

Back 49

A. £116. (140/1.20)

B. £175. (140/0.8)

Front 50

Taxable employee benefits are ?

Back 50

Back (Definition)

Front 51

Benefits of having a PAYE system

Back 51

Back (Definition)

Front 52

Tax authorities have methods to prevent tax evasion and avoidance they are? (6)

Back 52

Back (Definition)

Front 53

OECD model tax convention Andreses the issues of double residency?

Back 53

Back (Definition)

Front 54

Depn on land ?

Back 54

Land has no depn as it is deemed to have an limitless useful life