TAXATION-II

Time allowed – 3 hours

Total marks – 100

[N.B. – Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of
the quality of language and of the way in which the answers are presented. Different parts, if any, of the same
question must be answered in one place in order of sequence.]
Marks
1. Being a newly qualified Chartered Accountant, recently you joined in the tax department of a reputed
FMCG company. You report to the Head of tax, a non-professional, who reports to the CFO. As part
of your new assignment, your tax head has assigned you to look into the ongoing tax assessment by
Tax department for the income year ended on 31st December’15. On 13th March’18 upon review, you
have identified the following:
a) The due date for completion of the assessment was 31st December 2017, accordingly the
assessment order along with demand notice was supposed to be served by 31st January’18.
b) If it is considered that the assessment order along with demand notice was served on the due date,
there are only few days available for filing the appeal should the company be aggrieved by the
assessment order.
c) Your colleague (a non-professional, who was handling the matter prior to your joining) informed
that the assessment order is ready for collection on 20th March only but you have to provide a
antedated acknowledgement, which is 31st January’18.
d) On this, your tax head has strongly advised you not to offend the tax department but collect the
Assessment Order satisfying them by whatever means and it will not be disclosed to anyone.
Requirements:
i) How will you deal the matter in respect of antedated acknowledgement and the advice of your
Tax head? 5
ii) What would be the best possible way to handle the matter with tax authority maintaining the ethics. 5

2. You are the tax manager of SARAL Bangladesh Ltd (the company), a subsidiary of SARAL A.G. In
connection with the assessment made by the DCT for the income tax return filed for the company for
the income year ended on 31st December, 2015 you have identified the following:
i) DCT disallowed Tk. 15 million claimed as Technical know-how fees payable to SARAL A.G. as on
31st December, 2015 on the ground that no tax was deducted at the time of creating this provision on
or before 31 December 2015. While expressing opinion on this, DCT mentioned that by creating
provision for payment of Technical know-how fees, credit to the payee’s account was made, hence
tax was supposed to be deducted at the time of making such provision. The company actually paid
Technical know-how fees in November’16 upon due deduction of tax at source after getting approval
from Board of Investment (a requirement under Foreign Exchange Regulations)
ii) DCT disallowed Tk. 25 million claimed as profit participation and welfare funds payable to, or for the
welfare of, the employees and national Labour Welfare Fund, being 5% of profit before tax for the
company for the year ended on 31 December, 2015, as per the provision of Bangladesh Labour Act on
the ground that this is merely an appropriation of profit, hence should not be allowed as expenses.
Requirement:
Write the grounds of appeal against the above assessment order given by the DCT. 10

3. G-Star Ltd is a publicly listed Company, whose 75% share is owned by its non-resident Parent
Company N-star Ltd registered in Germany. G-star manufactures and markets biscuits under the N-
star’s world-wide brand name PANDA. N-star registered PANDA as a trademark in Bangladesh
market. Because of very high quality and taste PANDA biscuit is a household name in Bangladesh
and also market leader in terms of market share
As part of a global restructure, recently N-star Ltd declared that it will go for a restructuring
worldwide and consequent to this, it will sell out its entire biscuits business globally, although it may
continue its operation in other areas.
Globe Bangladesh Ltd., a newly incorporated multinational company in Bangladesh also listed in the
stock exchanges of Bangladesh, is engaged in the business of manufacturing and marketing of biscuits
and allied products. Being a new joiner in this sector in Bangladesh, the parent company, Globe
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 World Ltd (75% holder) considers this announcement by N-star Ltd. as an opportunity to establish
themselves in a ready market and therefore is seriously contemplating as to how they can go for the
acquisition so that PANDA biscuit becomes a part of their products portfolio.
Accordingly, Globe Group is considering evaluation of the acquisition under the following aspects:
a) Acquisition of N-star’s shares in G-star Ltd by Globe World Ltd only
b) Acquisition of N-star’s shares in G-star Ltd by Globe Bangladesh Ltd only
c) Purchase of N-star’s brand PANDA by Globe World Ltd
d) Under acquisition of share, brand rights will also be automatically transferred to the purchaser
In view of this, Globe Bangladesh Ltd has appointed you and requested you to provide a detailed
evaluation report in terms of income tax implications on the proposed acquisition considering all
the options mentioned above.
Requirements:
i) Provide a detailed evaluation report considering the implications of direct tax, both from
buyer’s and seller’s point of view. 6
ii) If acquisition of shares is finalized, recommend which option would be better from Globe
World Ltd.’s dividend earnings point of view. 4

4. Xen Bangladesh Ltd (“Xen BD” or “the company”) is a 100% owned subsidiary of Xen S.A., a
French conglomerate renowned for its famous consumer goods across the world. Xen BD is a public
company but not listed in stock exchange and has been engaged in manufacturing and marketing of
consumer goods under the global brands Xen S.A.
For the year ended on 31 December 2017, following extracts relevant for computing income tax for
Xen BD 2018-19 are available (amount expressed in 000’s Taka):
Turnover 5,800,290
Profit before tax 1,160,300
Depreciation as per book 180,350
Royalty expenses 231,590
Excess perquisite 44,890
Profit on sale of fixed asset 933
Entertainment expenses 76,456
On the above, further following information were provided:
1) Under total tax, deferred tax was charged as Taka 188,900,000 and current tax based on the
nominal marginal tax rate.
2) For Fiscal depreciation following information are available (in 000’s Taka):
Fiscal depreciation based on asset as on 31 December 2016 95,290
WDV of asset sold 517
Addition: Plant & Machinery 170,290
One new car for MD 19,000
3) The fixed asset was sold at Taka 1131,000, which was acquired at Tk.990,000 four years ago.
WDV of the said asset was Taka 198,000 as per book
Consider today is 31st May, 2018 and you are approaching for preparation of tax return for
submission with the tax authority.
You’re required to provide the following:
1) Computation of total income and tax liability for the relevant assessment year for income
year ended on 31st December 2017. 12
2) What would be tax rate to be considered for the tax computation and what is the basis of such tax
rate? Can this tax rate be changed before filing the tax return on the scheduled date? Explain. 2

5. (a) X Ltd is a Bangladeshi subsidiary of Y Ltd, based in UK. X Ltd. has entered enter alia into the
following transactions during the year 2017:
1) Taka 95 million equivalent US dollar was paid to Y Ltd for Royalty and Technical know-
how fees.
2) Taka 58 million equivalent US dollar paid to Z Ltd, a subsidiary of Y Ltd. based in Australia
for getting quality testing services.

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 3) Taka 63 million equivalent US dollar paid to W Ltd, an independent third party based in
China for which price was determined under a Global Contract between Y Ltd and W Ltd
for procurement of raw materials.
4) Taka 89 million paid to R Ltd, an associated company in Dhaka for insurance service, under
a global contract negotiated by Y Ltd.
Requirement:
Indicate whether the above transactions for the year 2017 will form part of the statement of
international transactions to be submitted under section 107EE of the ITO 1984? Discuss 8
(b) The CFO of X Ltd. seeks your professional opinion on the followings:
Y Ltd. sells some computer monitors to X Ltd. for resale in Bangladesh. Y Ltd. also sells
computer monitors to another computer reseller. It sells 5,000 computer monitors to X Ltd. at
Tk.50,000 per unit. The price fixed for another independent reseller is Tk.35,000 per unit. The
warranty in case of sale of monitors by X Ltd. is handled by X Ltd. However, for sale of monitors
by another reseller, Y Ltd. is responsible for the warranty for 3 months. Both Y Ltd. and X Ltd.
offer extended warranty at a standard rate of Tk, 15,000 per annum.
Requirement:
On these facts, determine the ALP, suggest the most appropriate method and the effect on the
net profit/income of the assessee company. 8
6. Mrs. Khan, an individual assessee, files her tax returns regularly. For the income year to be started
on 1st July 2018 Mrs. Khan is contemplating following income from salary based on the salary letter
issued to her:
Basic Salary per month 300,000
House rent allowances per month 125,000
Employer’s contribution to recognized provident
Fund per month 10% of basic salary 30,000
Utilities allowances per month 30,000
Special allowances for three months for the period from 1st July 2018 to 30th
September 2018 to meet expenses for conducting a special project in Cox’s Bazar 45,000
Festival bonus for the year 400,000
Mrs. Khan is also expecting to the following for the income year started from 1st July 2018:
1) Leave Fare Assistance Taka 200,000, which she planned to use in December’18 for buying air
tickets for her and family for travelling to Australia. Mrs. Khan also travelled to Singapore last
year, which she showed in her tax return as well.
2) As part of management incentives, on 1st July 2018 Mrs. Khan was granted with 500 shares of
the company, having current market price of Taka 500,000, which will be vested in 2021 subject
to fulfillment of certain employment conditions.
3) Mrs. Khan will also pay similar amount to the provident fund as employee subscription
4) Profit bonus of Taka 300,000 under the Bangladesh Labour law on which tax will be deducted
as per current provision of law
5) An investment in secondary shares of Taka 800,000 is planned to be invested in January 2019.
Mrs. Khan booked a flat having 1,400 square feet area in Bashundhara R/A on 1st July 2015, which
has been registered in his name on 1st July 2018 after completion of construction on 30th June 2018.
In relation to this, following information are available:
1) Cost of the flat is 75,00,000
2) For buying the flat, Mrs. Khan obtained a loan of Taka 40,00,000 from a non-banking financial
institution, which has been planned to settle in 5 years (i.e., by 30th June 2020. In connection with
this payment schedule for the loan is as follows:
Payment period Principal Amount Interest Remarks
(Taka) (Taka)
1st July’15 to 30th June’16 621,160 446,571 Already paid
1st July’16 to 30th June’17 699,940 367,794 Already paid
1st July’17 to 30th June’18 788,710 279,024 Already paid
1st July’18 to 30th June’19 888,738 178,996 Expected
1st July’19 to 30th June’20 1,001,452 66,282 Expected
Total 40,00,000 13,38,667

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 3) If Mrs. Khan rents out this flat, she expects to get Taka 16,000 per month and expenses in relation
to repairs, collection of rent, water, sewerage etc. equivalent to 1/4th of the rental value. In such
a case, Mrs. Khan will have to stay in a rented house with similar standards, which she may
consider provided it is financially viable at least for the next two years started from 1st July 2018.
4) Mrs. Khan has two 1500 CC car registered in her name, for which she will require to pay advance
tax as per existing provision of law.
You are required to compute: 20
1) Total income and monthly tax liability of Mrs. Khan’s for the income year starting from 1 st July
2018, if Mrs. Khan rents out her new flat or she does not rent out her new flat.
2) Which one you will recommend, from a financial point of view only?

7. (a) XYZ Ltd. (“Company”) was incorporated in Bangladesh on 01 July 2018 under the Companies
Act, 1994. Now, the Company is planning to establish a factory for export of readymade garments
in Europe. As per decision of the Board of Directors of the Company, commercial operation of
the Company will be started upon obtaining bonded warehouse license. You have joined the
Company recently as Manager (Taxation). While preparing business plan for the financial year
2018-2019, Manager (Business Plan) have come across the following issues relating to VAT:
(i) Payment to suppliers through local letter of credit;
(ii) Commission on letter of credit opened for import of office furniture;
(iii) Commission for establishing back to back letter of credit;
Requirement:
Manager (Business Plan) has requested you to brief him in writing about the implications of VAT
on the said transactions. 8
(b) Being responsible for VAT operations, you are requested to review price computation for the purpose
of submitting a price declarations with VAT authority. In relation to this, following information are
available for the relevant consignment of 120,000 pcs of semi-finished X-coffee packs:
a) C&F value of the consignment Tk.8,350,000
b) Assessable value as per bill of entry Tk.8,400,000
c) Basic duties, regulatory duties and supplementary duty paid Tk.4,502,400
d) AIT paid Tk.420,000
e) VAT paid Tk.1,935,360
f) Clearing other charges are 10% of C&F value
g) Further processing and packing cost 10% of C&F value
h) Overhead costs 20% of C&F value
i) Marine insurance cost for the consignment is Tk.100,000 and VAT paid on insurance
premium is Tk.15,000
j) Advertisement cost is 10% of C&F value on which 15% VAT was paid
k) Profit is 10% of the selling price
Requirements:
i) Compute total input VAT eligible for input tax credit and output VAT one 200g Jar of X-
coffee finished goods. 6
ii) What is the relation of input tax credit and Price declaration? Under what circumstances input
tax credit for certain item can be cancelled, even if there is a price declaration? 2
iii) Under what circumstances a revised price declaration will be required? 2
iv) A person pays VAT under truncated method, as such his truncated VAT rate is 4.5%. What
is his assumed fixed value addition? Can he claim input tax credit, which he pays for his
input purchase? 2

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