Ican 2021 Advanced Taxation Question 4

“The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction”. Gen Power Incorporated is an international power plant company based in New York, USA. It has subsidiary outlets in many parts of the world, especially in developing countries with major challenges in power generation and distribution. Kem Limited, Lagos, Nigeria is the only subsidiary company of Gen Power Incorporated in West Africa. In 2018, the Nigerian government awarded a contract for the sum of US $3 million to the foreign company for the construction of a power plant in a Northern commercial city that will generate 5 megawatts. The management of Gen Power Incorporated felt that, with little assistance from it, especially in the area of certain category of personnel, the Nigerian subsidiary company, Kem Limited, has the capacity to execute the contract. Thus, Kem Limited was given the mandate to perform the task. In executing the job, the following expenses were incurred: N’000 Materials and other direct inputs 320,800 Hire of special equipment 31,500 Foreign experts cost and emoluments 65,300 Personnel costs 110,400 Administrative expenses 52,000 Depreciation of assets 60,700 Repairs and maintenance 7,200 Fuel and oil 8,200 Miscellaneous expenses 27,100 Other relevant information: (i) The exchange rate is N362 to US $1. (ii) A similar special equipment could be hired from another company for N25 million. (iii) Included in administrative expenses was N12 million transferred to revenue reserve. (iv) Repairs and maintenance was made up of: N’000 Maintenance of vehicles 2,000 Improvement to the office building 1,700 Repairs of equipment 2,100 Renewals of tools and implements 1,400 7,200 (v) Miscellaneous expenses included N4 million, being loss on exchange for import payment of materials used for the project (vi) Capital allowances agreed with the tax authorities was N57 million.