Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Tax withheld on return of investment.
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- March 1, 2018 at 3:01 pm #439555
So I am auditing a Company based in Malta. That Company has bought 8% of shares in X company based in Netherlands and also paid share premium. X company returns this share premium to the Maltese Company but this return of investment is subject to withholding tax by Dutch authority which is final tax and cannot be recovered. This is the accounting treatment done by the Company:
Year 1:
Dr. Investment 1,000,000 (100,000 share capital and 900,000 share premium)
Cr. Cash 1,000,000.In the following year X company (which is now very profitable) returned some of the share premium to the Company and expects to return more in coming years. But Dutch authorities withhold 10% tax on all outbound payments. This is the accounting treatment done by the Company:
Year 2:
Dr. Cash 180,000
Dr. Administrative exp 20,000
Cr. Investment 200,000The management of the Company charged it in administrative expense because this tax is not a tax on income but it is a transaction cost, hence an administrative expense.
Someone suggested that in year one the Company should have recorded a deferred tax liability and charged an expense in PnL of 90,000. And in following years they should reduce the liability every time they receive the payments.
While I think that the Company should have impaired the investment in year one by 90,000 since the carrying amount of 1,000,000 is higher than it’s recoverable amount of 910,000.
Really confused regarding this, what should be the correct treatment of this?
March 4, 2018 at 8:25 pm #440196Hi,
I cannot provide information on something like this. If I give you incorrect information then I may be liable, sorry.
Thanks
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