Ican 2024 Advanced Taxation Question 3

Lagode Nigeria Limited, a company based in Lagos, Nigeria, commenced operations as a manufacturer of indigenous fabrics/ clothing materials in 2013. The finished products are sold to wholesalers and retailers in Nigeria and Africans in diaspora. There is usually a brisk market during annual holiday periods when Nigerians, in particular, come home for visitations and while returning to their foreign destinations purchase some of these finished fabrics for personal use and/or resale purposes. A market survey conducted by Lagode Nigeria Limited in October 2018 revealed that there was no company in the North American continent that was into the manufacturing of local Nigerian fabrics; hence the opportunity for the company to enter the market. The resolution of the Board of the company in one of its meetings in 2019 favoured the establishment of a branch of the company in Canada. Kuramo Incorp., Ottawa, was therefore registered and started operations in January 2020. The company has been operating successfully with gross turnover and profits generated from its operations more than that in Lagos (Head office), in each of the last three years. The business operating results of the two companies for the year ended December 31, 2022 revealed the following: Lagos, Nigeria Ottawa, Canada N’000 N’000 Gross turnover 180,200 330,800 Less: Expenses Cost of materials 72,100 162,320 Wages and salaries 18,050 42,120 Finance costs 1,400 3,150 Miscellaneous 4,600 5,270 Depreciation of plant and equipment 5,760 8,750 Share of head office expenses 25,600 16,040 Foreign tax paid - 18,900 Total expenses 127,510 256,550 Net profit 52,690 74,250