Ican 2024 Advanced Taxation Question 7

Abakali Limited is a company engaged in the manufacturing of three variants of beverages. The products of the company are well received by the consumers as the company now controls about 55% of the domestic market. The “chocolate” brand is the top earners for the company. According to a recent newspaper review, “it has the same quality as those imported into the country from the western world”. The Board of the company has at one of its meetings decided to enter the West African market in 2024 and by 2026, the European market, through: (i) Establishment of depots in major cities of four neighbouring countries (Republic of Benin, Togo, Ghana and Niger) and goods will be transported by road; and (ii) Incorporation of a branch in a European country; initially serving as a depot, but within the following 2 years, full production will commence. As stressed by one of the directors at the meeting, the major challenge the company has to sort out before the foray into these new markets, is the strategy to mitigate the negative impact of high tax rates (in Europe and West African countries) on the profits of the company, for better returns on investment to be achieved. A director, who had earlier worked in an international company, suggested the use of “treaty shopping” as a tax planning strategy in the location of the branch office in Europe. He equally pointed out that the Economic Community of West African States (ECOWAS) common external tariff framework has provided solution to the issue of different tax regimes in the sub-region. Most of the members of the Board are not conversant with the concept of “treaty shopping” and ECOWAS common external tariff framework, and has therefore requested for professional advice on these issues. The Managing Director, on behalf of the Board, has approached your professional accounting firm to provide advice on the salient points raised in the meeting.