ASB4442 Describe each of the four canons of taxation.
SECTION A - YOU MUST ANSWER BOTH QUESTIONS 1 AND 2
Question 1 -Adam Smith`s Wealth of Nations was published in 1776 and set out four canons of taxation: the desirable characteristics for a tax system,
Required (you must answer parts (a) and (b)):
(a) Describe each of the four canons of taxation.
(b) Critically appraise the canons of equity, certainty and convenience with relation to the UK income tax system and state which you consider to be the most important of these with respect to young workers, giving reasons.
Question 2 -(you must answer parts (a) and (b))
(a) Explain the significance of transfer pricing in the context of international corporation tax and discuss why it can give rise to uncertainty as to a company`s corporate tax liability.
(b) Explain and discuss the advantages and disadvantages of a global formulary apportionment approach to transfer pricing, for both a multinational corporation (MNC) and a tax authority.
Section B - Choose any THREE questions from five in this section
Question 3 -(answer both parts (a) and (b)):
Amal is a sole trader, selling fashion accessories. Her accountant has prepared the following income statement for the year ended 30 September 2020.
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Turnover |
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600,000 |
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Less: Cost of sales |
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(300,000) |
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Gross profit |
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300,000 |
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Less: |
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Wages (note 1) |
99,500 |
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Rent and utilities (note 2) |
20,000 |
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Advertising |
10,000 |
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Insurance (note 3) |
3,000 |
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Delivery costs |
20,000 |
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Legal and professional fees (note 4) |
50,000 |
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Repairs and renewals (note 5) |
20,000 |
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Deprecation |
3,000 |
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Bad and doubtful debts (note 6) |
1,100 |
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Telephone and internet |
1,000 |
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Packaging |
2,000 |
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Loss on disposal of fixed asset |
500 |
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Sundry expenses (note 7) |
2,000 |
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(232,100) |
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Net profit |
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67,900 |
Further information:
Note 1: Wages include Amal`s annual salary of 24,750.
Note 2: It has been agreed that 180 of this expense relates to electricity for Amal`s domestic use at her home.
Note 3: Insurance includes 1,200 in respect of Amal`s mother`s private health insurance.
Note 4: Legal and professional fees are as follows:
Debt collection 3,000
Legal fees for suing a customer for non-payment 8,000
Fees relating to the potential purchase of new premises 35,000
Audit and accountancy 4,000
Note 5: Repairs and renewals are as follows:
Minor repairs 2,000
Decoration of offices 6,000
Installation of new improved heating system 12,000
Note 6: Half of the bad and doubtful debts expense is in respect of a customer who went bankrupt. The remining balance is in respect of a general provision for doubtful debts.