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Hi
Please advise me where I am wrong.
The scenario states ‘a bilateral tax treaty exists between Yilandwe and USA’
I understand this as the tax payable in the US on profits made in Yilandwe may be reduced by the amount of tax paid on this profit in Yilandwe.however, in year 2 Taxable Profit earned in Yilandwe is YR21,245m.
Amount of the Tax payable in Yilandwe = zero
Why don’t we deduct 20% tax on this amount in USA?Thank you
You have a valid point but it depends on the details of the bilateral tax treaty, which we do not have full details on.
It depends (as so much in P4 – especially question 1) on the assumptions you make. That is why you must always state your assumptions (and why the question specifically asks you to discuss them). Provided your assumptions are sensible then you will still get full marks (even though obviously it could result in a different answer).
The examiner has stated his assumption about the tax in the first two years within his report.
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