PE, IDT, TAX PLANNING, AVOIDACE

AC 307: ADVANCED TAXATION &AVERSION.

UNIVERSITY OF DAR ES SALAAM BUSINESS SCHOOL

AC 307 – ADVANCED TAXATION 2023/2024
COURSE ITEM: REVIEW QUESTIONS

QUESTION 1
El Sewedy Electric Construction (T) Limited is a Tanzanian branch of an Egyptian incorporated
company contracted in Tanzania to build a 2,115 megawatts Julius Nyerere Hydropower station
famous as the “Stiegler’s Gorge”.

The following are the results of its operations for the year ended 31 December 2022:
Notes TZS (million) TZS (million)
Turnover 9,820.0
Cost of sales (4,124.4)
Gross profit 5,695.6
Add: Interest received 32 .0
Rent Received 1 4.8 36.8
5,732.4
Expenses:
Depreciation 2 2,112.0
Donation 3 100.0
Repair and maintenance 35.0
Rent 484.0
Selling expenses 48.0
Transportation expenses 88.0
Miscellaneous expenses 300.0
Interest 4 32.0
Salaries and wages 736.0
Administrative overheads 1,620.0 (5,555.0)
Profit before tax 177.4

Other information:
1. Rent receivable is with respect to a machine leased to the head office. Administrative
overheads include the following:
Withholding taxes on management fees 2,720,000
Management fees paid to Egypt (Head Office) 18,000,000
Employees’ benefits 2,960,000
Directors’ fees 3,200,000
Travel expenses (Head Office directors) 2,600,000

2. The following are the details in connection with the non-current assets of the company:

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AC 307: ADVANCED TAXATION &AVERSION.

Class 1 Class 2 Class 6

TWDV at 1 January 2022 (TZS) 20,000,000 180,000,000 140,000,000
TWDV at 31 December 2022 (TZS) 50,000,000 65,000,000 129,000,000

The depreciation allowance for the year of income computed in accordance with Income Tax
Act, 2004 provisions was TZS 156,000,000.
3. Donations was made to an institution approved under Education Fund Act, 2001
4. Interest related to a Loan amount from Egypt (Head Office)
5. Other assets were as follows:
31 December 2022 31 December 2021
TZS TZS
Receivables 120,000,000 110,000,000
Cash in Hand 110,000,000 90,000,000
Bank 70,000,000 50,000,000

6. Net Incomings for Liabilities as at 1 January 2022 and 31 December 2022 was TZS 30,000,000
and TZS 20,000,000 respectively.
7. Accumulated profit account had a credit balance of TZS 678,000,000.
8. During the year, the branch received a total of US$ 40,000 from its head office, half of it being
an additional capital and the remaining amount being a working capital loan repayable in ten
years.
9. Assume that the exchange rate is TZS 2,320/US$.
10. Ignore withholding taxes.
11. The accumulated profit account has a credit balance of TZS 620,000,000.
Required:
i] Calculate the repatriated income, if any, by El Sewedy Electric Construction (T) Limited
for the year of income 2022.
ii] Calculate the income tax payable by El Sewedy Electric Construction (T) Limited for the
year of income 2022.

QUESTION 2
a) Mwaipalu is a Tanzanian who was employed in United Kingdom (UK) as a paramedic for
the first six months in the year 2022 for which she was paid a total of £12,000. She later
moved to Tanzania where she was employed at a salary of TZS.24,000,000 for the
remaining six months of the year 2022.The UK authorities has kept a tax holiday since the
emergence of COVID-19 hence, she would have been charged a tax on her pay amounting
to £2,200. Assume that the applicable foreign exchange rate for IGBP was TZS.3,120.
Tanzania has a double taxation agreement with UK.
REQUIRED:
Calculate the amount of double taxation relief due to and tax burden to Mwaipalu in 2022

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AC 307: ADVANCED TAXATION &AVERSION.

b) The main focus of bilateral tax treaties is the elimination of double taxation and fiscal
evasion.
REQUIRED:
In the context of the above statement, explain the meaning of the following as used in tax
treaties:
i. Double taxation treaties
ii. Fiscal evasion
iii. Treaty shopping

c) Double taxation agreements exist among Tanzania and some foreign countries.
REQUIRED:
i. Explain the term “permanent establishment” as contained in the double taxation
agreement between Tanzania and any country of your choice.
ii. Evaluate the current Tanzania’s double taxation treaties.
iii. Provide any four (4) appropriate recommendations to Tanzanian policy makers in
respect to double taxation agreements.

QUESTION 3
a) Moza Ltd, a company resident in South Africa engaged in the trading of specialized
cosmetic products, is proposing to market and sell its products in the United Republic of
Tanzania (URT) and is exploring various options to operate in the URT.
REQUIRED:
State four (4) activities which may be undertaken by Moza Ltd in the URT without giving
rise to a permanent establishment in the URT.

b) Tax havens are jurisdictions that were identified by the OECD in June, 2000 to meet the
tax haven criteria.
REQUIRED:
Explain any four (4) factors used in identifying a tax haven.

c) The arm’s length principle requires that the price charged in a transaction between
associated persons should be the same as that which would have been charged if such
transaction was conducted between independent persons under the same or similar
circumstances.
REQUIRED:
Explain any five (5) challenges encountered in application of the arm’s length principle.

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AC 307: ADVANCED TAXATION &AVERSION.

QUESTION 4
a) Generally, cross boarder activities suffer a higher tax liability of a worldwide basis than
just domestic or single country transactions. They are subject to tax in more than one tax
jurisdictions. Moreover, the taxpayer may have to cope with inconsistent tax laws, erratic
tax authorities and high taxes in various jurisdictions. Proper tax planning is, therefore,
essential in an international business to reduce the distortions that arise due to the lack of
harmonization with domestic tax systems. Without tax planning, it would suffer from
excess tax payments and additional tax compliance costs. Most planning techniques used
today rely on the certain principles.
REQUIRED: Explain six (6) common techniques used in international tax planning

b) Many countries have developed competitive development incentives packages in order to

attract both local and foreign capitals. With the increasing liberalization of international
trade and investment policies and cooperation among nations, the income arising from
international transactions is likely to suffer international double taxation. It is therefore,
necessary to formulate appropriate policies that will minimize the undesirable effects of
international double taxation of income. To manage these, tax authorities and tax policy
makers need to be careful in order to avoid discouraging business in a country.
REQUIRED:
Explain any five (5) conditions that Commissioner will insist on their fulfillment for a claim of
double taxation relief/credit to be granted.

QUESTION 5
a) Differentiate between domestic and foreign permanent establishments.
b) Jojo is a domestic permanent establishment. The following information was extracted from
book of accounts of Jojo.
1. At the end of the year of Income 2020, the written down pool of depreciable assets (WDVs)
and other assets showed TZS.33,000,000 and TZS.52,000,000 respectively.
2. Total costs of all depreciable assets of the 2019 were TZS.48,000,000. Total depreciation
allowances claimed on the assets were TZS.20,000,000 and net costs of the other assets
were TZS.25,000,000.
3. There was no balance in the retained earnings account as at 31st December 2020.
4. During the year, Jojo borrowed TZS.20,000,000 from a financial institution at 5% interest.
5. The loan is repayable in 2 years equal installments at the end of each year.
6. While there was taxable profit of TZS.12,500,000 for the 2019, during the year ended 2020
the company reported total income equal to TZS.195,000,000.
7. During the year TZS.50,000,000 was added as capital.
REQUIRED:
i. Calculate repatriated income of Jojo for the year ended 2020.
ii. Compute total taxes payable by Jojo for the year ended 2020

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AC 307: ADVANCED TAXATION &AVERSION.

QUESTION 6
Simbuli and Assembler Design Makers, a domestic permanent establishment of a non-resident
entity, has the following information about its financial affairs for year ending 31st December
2023.
a) Net cost of assets at the start of the year was Tshs20,000,000
b) During year 2023 it issued 2,000 shares each at Tshs1,000 but the market value of shares
has since increased to Tshs1,050.
c) Written down value of the depreciable assets at the end of the year was Tshs10, 000,000
and the values of other assets were Tshs5,000,000.
d) The company borrowed 2 years free of interest loan of Tshs3, 000,000 on 1 January 2023
from various lenders, annual repayment of the loan is Tshs1, 500,000.
e) The company has total income of Tshs40,000,000 during the year before deducting
previous unrelieved loss.
f) Corporate tax rate was 30% and tax rate for repatriated income was 10%.
g) The balance of accumulated profit account was Tshs10,000,000 on the credit side.
Required:
Calculate the tax liability of the company for the year ending 31st December 2023.

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