Presented by: Cecilia Ramabu

 Starting Point  Individuals – s.2 says they may not aggregate losses from one source with incomes from other sources.  Company – all sources of incomes are deemed to be from one source except where the company is also dealing in farming, mining, prospecting or disposal of property under 10 th schedule.

 3 types of losses;  Business losses (section 46)  Farming losses (section 46,47 & 48)  Net Aggregate Losses (10 th Schedule)

 Business Losses (s.46)  Assessed Loss – loss determined by CG ( for individuals) Vs loss for company (s.78).  The business loss incurred in a tax year shall be c/f and claimed as a deduction against the relevant chargeable income of subsequent tax years.

 Unrelieved losses are forfeited after being carried forward for 5 years.  Where a TP has made one loss after another, they should be set off in their chronological order of occurrence.  Creditors have relinquished debts – use the benefit from the waived debt to reduce amount of the loss.

 How do we arrive at the Net Aggregate Losses (NAL) on disposal of certain capital assets.  NAL may be carried forward and set off against NAG accruing to the TP in the immediately succeeding tax year.  Any excess loss thereafter will become wasted.

 Farming Losses : Easy to make – qualifying development costs.  All taxpayers may;  c/f and set off against future farming income indefinitely.  c/bwd and set off against farming income for preceding 2 tax years.

 Individual farmers are allowed to deduct farming losses incurred in any tax year from other incomes generated in that tax year.  The deduction is capped at 50% of the aggregate amount of other incomes.  The other incomes generally do not include disposal gains under the 10 th schedule.

 However if a TP disposes of farming property under the 10 th schedule he is allowed to claim any unrelieved farming losses b/f from 5 preceding tax years, against the gain from such a disposal.

What is a transfer price? Dfn – is a price that one part of a company charges another part for goods and services. - The divisions must be semi autonomous - It could also be used for goods transferred from one member of the group to another.

Why is it necessary?  Performance evaluation  Motivation of division managers – they feel they are in control and are able to make some form of profit.  It is used to minimise tax liabilities for the group.

Why is it necessary…?  It may also be used to extract group profits from a country that charges high tax to one that charges low tax.  CG’s assumes that prices of goods should be set on an arms length basis – not possible within a group setting hence the need for control. section 36

OECD suggested arms length methods;  Traditional Transactional methods 1.Comparable Uncontrolled Price method (CUP) 2.Resale Price Method (RPM) 3.Cost Plus Method (CP method)- preferred

Transactional Profit methods: 1.Profit Split Method (PS Method 2.Transactional Net Margin Method (TNMM)

 CUP Transfer price is set based on a comparison between two unrelated corporations executing comparable transactions. Problems that prices will not be entirely be comparable.

 CP method - used for goods that come from factories price = cost of prodn + the mark up Mark up is based on mark up charged by comparable companies. Accepted by most tax authorities – it approximates the real cost of items.

 Advanced Pricing Method (APA)  Tax authorities can agree with a company on the price to be used in the future for a designated period.  -good for the taxpayer

 Why Now?  Too many reasons;  Mainly because govt needs more money for development.

 Thank you.