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Dear Turor,
In the solution provided in BPP’s kit for part a(i) of the subject question, they have calculated the additional tax (double tax) as 10% of $45m. However, I think it should instead have been 10% of $20,520. This is because even though B earns profit of $45m, it is remitting only $20,520 back to A. And hence the double tax would apply to only that portion of profit which is being remitted back, rather than the entire profit of B. Am I correct?
Thank you.
No. The answer is correct.
Arthuro pays tax at 30% on all the profits of Bowerscots. However, because there is a double tax treaty, the can offset that tax paid by Bowerscots and therefore there is addition tax payable of 10% on all the profits. This has nothing to do with the amount remitted and is the way that double tax agreements always work 🙂
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