THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Taxation of Major Corporates
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Robalex Ltd is the parent of a UK group engaged in property development and investment, regularly
buying and selling new properties.
The Board has reviewed the portfolio and wishes to market properties that do not fit within current
objectives. They want to sell the properties held by Jessamyn Ltd, a wholly owned subsidiary of
Robalex Ltd.
Robalex Ltd acquired the 750,000 £1 ordinary shares in Jessamyn Ltd in May 2015 from a third
party for £1 million. It invested further equity of £1.25 million in Jessamyn Ltd in April 2018 to finance
the acquisition of Wye View Office and Beachside Café.
The funds raised from the disposals will be loaned to Newline Ltd, a fellow subsidiary, to enable
that company to acquire further properties.
Jessamyn Ltd currently holds three properties, as follows:
Date of acquisition Cost Further details Estimated
value at 30
April 2022
River View January 2010 – owned by £750,000 Tenanted office £1.5million
House Jessamyn Ltd at time of building
acquisition by Robalex Ltd.
Wye View Acquired from Newline Ltd, £750,000 when Tenanted office £850,000
Office in April 2018. its market value building
was £800,000
Newline Ltd had acquired
the property from a third
party in June 2012 for
£525,000.
Beachside Acquired from a fellow £500,000 when Seafront cafe £650,000
Café subsidiary, Metcalf its market value with significant
Developments Ltd, in April was £550,000 land, offering
2018. investment
potential.
Metcalf Developments Ltd
had acquired the land for Currently on
£350,000 in January 2017 short-term lease
and developed the site at a to tenant.
cost of £120,000.
There are no other significant assets or liabilities in Jessamyn Ltd. The summary balance sheet at
30 April 2022 is:
£
Properties at valuation 3,000,000
Share capital 2,000,000
Revaluation reserve 1,000,000
Total 3,000,000
Requirement:
Explain the different options for the property disposals and the associated Corporation Tax
consequences. (20)
,2. The Fairchester group comprises 10 companies, all of which are UK resident, and has 600
employees in total. The group specialises in cyber security. It has achieved steady organic growth
in the UK since it was established and is now considering expansion into Europe.
The Board have identified an opportunity to acquire the share capital of MBH SA, a Spanish
headquartered sub-group.
MBH SA is wholly owned by AB SA and has three wholly owned subsidiaries, MBH Bulgaria Ltd
(incorporated and resident in Bulgaria), MBH Retailing Ltd (incorporated and resident in the UK)
and MBH Developer (UK) Ltd (incorporated and resident in the UK) as well as permanent
establishments in France and Portugal.
All intellectual property and patents associated with the products are held by MBH Bulgaria Ltd.
Product development is undertaken by MBH Developer (UK) Ltd and recharged to MBH Bulgaria
Ltd, where it has been capitalised as an intangible asset.
In addition to the Spanish trading operations, the MBH SA group has developed a sales network in
the UK through MBH Retailing Ltd and in Portugal and France through permanent establishments.
Tax returns for these operations have been filed with the relevant tax authorities. Several one-off
issues, primarily related to specific customer relationships, have adversely affected the French
results in recent years but there is no longer any trade with these customers and it is hoped that
the results will improve in the future.
The historical results are summarised below:
Historical profit/(loss) before tax
Year ended MBH SA French Portuguese MBH MBH MBH
31 December Permanent Permanent Retailing Developer Bulgaria
Establishment Establishment Ltd (UK) Ltd Ltd
£’000 £’000 £’000 £’000 £’000 £’000
2017 500 (30) (150) 750 250 350
2018 750 (250) (50) 550 310 245
2019 800 (300) 100 600 400 305
2020 750 (250) 150 800 450 350
2021 550 (450) 300 950 500 400
Local tax rate 25% 30% 21% 17% 17% 10%
The above results for MBH SA include the figures for the permanent establishment operations that
are also shown separately. The permanent establishments each employ 30 staff and MBH SA has
a further 75 employees.
The Board want to understand the key issues associated with expanding overseas and in particular
whether they would need to reorganise the MBH SA group following its acquisition. They want
advice on the UK Corporation Tax aspects of this and any opportunities to reduce effective rates
of tax.
Requirement:
Explain the UK Corporation Tax issues associated with the proposed overseas expansion
and advise on any opportunities to minimise the effective rate of tax. (20)
, 3. CircleChester plc is the parent company of a large multinational group. On 1 July 2021,
CircleChester plc incorporated a new UK-resident subsidiary, Girmels Ltd. Girmels Ltd started
trading immediately after incorporation.
Extract from Income Statement of Girmels Ltd
Period ended 31 March 2022:
£’000
Turnover 5,321
Cost of sales (4,925)
Gross profit 396
Administration expenses (450)
Depreciation (215)
Loss before tax (269)
Note: there are no Corporation Tax disallowable items within cost of sales or administration costs.
Fixed asset note
Cost Freehold Plant and Motor Total
land and office vehicles
buildings equipment
Note 1 Note 2 Note 3
£’000 £’000 £’000 £’000
Additions in period 4,335 960 155 5,450
Carried forward 4,335 960 155 5,450
Depreciation
Charge in period 50 140 25 215
Carried forward 50 140 25 215
Net Book Value
31 March 2022 4,285 820 130 5,235
The following details are provided in connection with the additions.
Note 1
Freehold land and buildings represents the newly constructed warehouse used by the company.
The surveyors have provided an analysis of the spend as follows:
£’000
Land 1,000
Building structure 2,500
Fixed mezzanine floor for offices 160
Electrical and water supplies 330
Air conditioning 150
Reinforcement of floor prior to installation of equipment 120
Solar panels 75
4,335
Note 2
All plant and equipment is directly used in trading activities.
Note 3
Motor vehicles
Cost Emissions
£’000
Three delivery vans 120 140g/km
Director’s company car 35 100g/km
155
The group has a policy that no payment is made for losses surrendered as group relief.
The Annual Investment Allowance has been used in full by other group companies.
ADVANCED TECHNICAL
Taxation of Major Corporates
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Robalex Ltd is the parent of a UK group engaged in property development and investment, regularly
buying and selling new properties.
The Board has reviewed the portfolio and wishes to market properties that do not fit within current
objectives. They want to sell the properties held by Jessamyn Ltd, a wholly owned subsidiary of
Robalex Ltd.
Robalex Ltd acquired the 750,000 £1 ordinary shares in Jessamyn Ltd in May 2015 from a third
party for £1 million. It invested further equity of £1.25 million in Jessamyn Ltd in April 2018 to finance
the acquisition of Wye View Office and Beachside Café.
The funds raised from the disposals will be loaned to Newline Ltd, a fellow subsidiary, to enable
that company to acquire further properties.
Jessamyn Ltd currently holds three properties, as follows:
Date of acquisition Cost Further details Estimated
value at 30
April 2022
River View January 2010 – owned by £750,000 Tenanted office £1.5million
House Jessamyn Ltd at time of building
acquisition by Robalex Ltd.
Wye View Acquired from Newline Ltd, £750,000 when Tenanted office £850,000
Office in April 2018. its market value building
was £800,000
Newline Ltd had acquired
the property from a third
party in June 2012 for
£525,000.
Beachside Acquired from a fellow £500,000 when Seafront cafe £650,000
Café subsidiary, Metcalf its market value with significant
Developments Ltd, in April was £550,000 land, offering
2018. investment
potential.
Metcalf Developments Ltd
had acquired the land for Currently on
£350,000 in January 2017 short-term lease
and developed the site at a to tenant.
cost of £120,000.
There are no other significant assets or liabilities in Jessamyn Ltd. The summary balance sheet at
30 April 2022 is:
£
Properties at valuation 3,000,000
Share capital 2,000,000
Revaluation reserve 1,000,000
Total 3,000,000
Requirement:
Explain the different options for the property disposals and the associated Corporation Tax
consequences. (20)
,2. The Fairchester group comprises 10 companies, all of which are UK resident, and has 600
employees in total. The group specialises in cyber security. It has achieved steady organic growth
in the UK since it was established and is now considering expansion into Europe.
The Board have identified an opportunity to acquire the share capital of MBH SA, a Spanish
headquartered sub-group.
MBH SA is wholly owned by AB SA and has three wholly owned subsidiaries, MBH Bulgaria Ltd
(incorporated and resident in Bulgaria), MBH Retailing Ltd (incorporated and resident in the UK)
and MBH Developer (UK) Ltd (incorporated and resident in the UK) as well as permanent
establishments in France and Portugal.
All intellectual property and patents associated with the products are held by MBH Bulgaria Ltd.
Product development is undertaken by MBH Developer (UK) Ltd and recharged to MBH Bulgaria
Ltd, where it has been capitalised as an intangible asset.
In addition to the Spanish trading operations, the MBH SA group has developed a sales network in
the UK through MBH Retailing Ltd and in Portugal and France through permanent establishments.
Tax returns for these operations have been filed with the relevant tax authorities. Several one-off
issues, primarily related to specific customer relationships, have adversely affected the French
results in recent years but there is no longer any trade with these customers and it is hoped that
the results will improve in the future.
The historical results are summarised below:
Historical profit/(loss) before tax
Year ended MBH SA French Portuguese MBH MBH MBH
31 December Permanent Permanent Retailing Developer Bulgaria
Establishment Establishment Ltd (UK) Ltd Ltd
£’000 £’000 £’000 £’000 £’000 £’000
2017 500 (30) (150) 750 250 350
2018 750 (250) (50) 550 310 245
2019 800 (300) 100 600 400 305
2020 750 (250) 150 800 450 350
2021 550 (450) 300 950 500 400
Local tax rate 25% 30% 21% 17% 17% 10%
The above results for MBH SA include the figures for the permanent establishment operations that
are also shown separately. The permanent establishments each employ 30 staff and MBH SA has
a further 75 employees.
The Board want to understand the key issues associated with expanding overseas and in particular
whether they would need to reorganise the MBH SA group following its acquisition. They want
advice on the UK Corporation Tax aspects of this and any opportunities to reduce effective rates
of tax.
Requirement:
Explain the UK Corporation Tax issues associated with the proposed overseas expansion
and advise on any opportunities to minimise the effective rate of tax. (20)
, 3. CircleChester plc is the parent company of a large multinational group. On 1 July 2021,
CircleChester plc incorporated a new UK-resident subsidiary, Girmels Ltd. Girmels Ltd started
trading immediately after incorporation.
Extract from Income Statement of Girmels Ltd
Period ended 31 March 2022:
£’000
Turnover 5,321
Cost of sales (4,925)
Gross profit 396
Administration expenses (450)
Depreciation (215)
Loss before tax (269)
Note: there are no Corporation Tax disallowable items within cost of sales or administration costs.
Fixed asset note
Cost Freehold Plant and Motor Total
land and office vehicles
buildings equipment
Note 1 Note 2 Note 3
£’000 £’000 £’000 £’000
Additions in period 4,335 960 155 5,450
Carried forward 4,335 960 155 5,450
Depreciation
Charge in period 50 140 25 215
Carried forward 50 140 25 215
Net Book Value
31 March 2022 4,285 820 130 5,235
The following details are provided in connection with the additions.
Note 1
Freehold land and buildings represents the newly constructed warehouse used by the company.
The surveyors have provided an analysis of the spend as follows:
£’000
Land 1,000
Building structure 2,500
Fixed mezzanine floor for offices 160
Electrical and water supplies 330
Air conditioning 150
Reinforcement of floor prior to installation of equipment 120
Solar panels 75
4,335
Note 2
All plant and equipment is directly used in trading activities.
Note 3
Motor vehicles
Cost Emissions
£’000
Three delivery vans 120 140g/km
Director’s company car 35 100g/km
155
The group has a policy that no payment is made for losses surrendered as group relief.
The Annual Investment Allowance has been used in full by other group companies.
