International Tax Avoidance

(b) State the immediate tax implications of the proposed gift of the share portfolio to Avril and identify an

alternative strategy that would achieve Crusoe’s objectives whilst avoiding a possible tax liability in the

future. State any deadline(s) in connection with your proposed strategy. (5 marks)

A.tax refund

B.tax increase

C.tax exemption

D.tax reduction

alculation of the deferred tax

provision for their company. They are quite surprised at the impact on the provision caused by changes in accounting

standards such as IFRS1 ‘First time adoption of International Financial Reporting Standards’ and IFRS2 ‘Share-based

Payment’. Panel is adopting International Financial Reporting Standards for the first time as at 31 October 2005 and

the directors are unsure how the deferred tax provision will be calculated in its financial statements ended on that

date including the opening provision at 1 November 2003.

Required:

(a) (i) Explain how changes in accounting standards are likely to have an impact on the provision for deferred

taxation under IAS12 ‘Income Taxes’. (5 marks)

A European based company follows IFRS (International Financial Reporting Standards) and capitalizes new product development costs. During 2008 they spent€25 million on new product development and reported an amortization expense related to a prior year’s new product development of €10 million. Other information related to 2008 is as follows:

An analyst would like to compare the European company to a similar U.S. based company and has decided to adjust their financial statements to U.S. GAAP. Under U.S. GAAP, and ignoring tax effects, the cash flow from operations (€ millions) for the company would be closest to:

A. 265.

B. 275.

C. 290.

its national supermarkets in the

late 1990s it has extended its operations throughout Europe and most recently to Asia, where it is expanding rapidly.

You are a manager in Andando, a firm of Chartered Certified Accountants. You have been approached by Duncan

Seymour, the chief finance officer of Plaza, to advise on a bid that Plaza is proposing to make for the purchase of

MCM. You have ascertained the following from a briefing note received from Duncan.

MCM provides training in management, communications and marketing to a wide range of corporate clients, including

multi-nationals. The ‘MCM’ name is well regarded in its areas of expertise. MCM is currently wholly-owned by

Frontiers, an international publisher of textbooks, whose shares are quoted on a recognised stock exchange. MCM

has a National and an International business.

The National business comprises 11 training centres. The audited financial statements show revenue of

$12·5 million and profit before taxation of $1·3 million for this geographic segment for the year to 31 December

2004. Most of the National business’s premises are owned or held on long leases. Trainers in the National business

are mainly full-time employees.

The International business has five training centres in Europe and Asia. For these segments, revenue amounted to

$6·3 million and profit before tax $2·4 million for the year to 31 December 2004. Most of the International business’s

premises are held on operating leases. International trade receivables at 31 December 2004 amounted to

$3·7 million. Although the International centres employ some full-time trainers, the majority of trainers provide their

services as freelance consultants.

Required:

(a) Define ‘due diligence’ and describe the nature and purpose of a due diligence review. (4 marks)

The Basics of Import and Export

Importing and exporting is transferring goods from one country to another while paying attention to the laws and requirements of bringing goods out or into that country. If you want to import in large quantities for commercial purposes, you’ll need to have the consent of the local customs department and the right paperwork. Import and export are the basics of international trade. If you are looking forward to starting your own business in the field of importing and exporting business then here are some tips for starters.

Foreign embassies provide nice programs and a great deal of information about their goods to promote exporting. You can find out exactly what it is you are looking to buy. If you are exporting, you can approach your local department of trade and see what plans they have on offer to promote exports. Besides, you should consult the tax department to find out if there is a particular process to setting up an importing and exporting company and what documentation you will require. It is also necessary that you find out about any licensing requirements for importing and exporting of goods. Some countries do not allow their goods to go to a certain country and vice versa, this is known as an embargo. In this way, you can make sure that there are no embargoes with the country you are looking to trade with.

1. International trade refers to both import and export.

2. Only after the local customs department agrees, could you start your own business in the field of import and export.

3. Foreign embassies do nothing to help promote exporting.

4. If you are exporting, you can turn to no one for help.

5. Some countries do not allow their goods to go to a certain country.

(b) You are an audit manager in a firm of Chartered Certified Accountants currently assigned to the audit of Cleeves

Co for the year ended 30 September 2006. During the year Cleeves acquired a 100% interest in Howard Co.

Howard is material to Cleeves and audited by another firm, Parr & Co. You have just received Parr’s draft

auditor’s report for the year ended 30 September 2006. The wording is that of an unmodified report except for

the opinion paragraph which is as follows:

Audit opinion

As more fully explained in notes 11 and 15 impairment losses on non-current assets have not been

recognised in profit or loss as the directors are unable to quantify the amounts.

In our opinion, provision should be made for these as required by International Accounting Standard 36

(Impairment). If the provision had been so recognised the effect would have been to increase the loss before

and after tax for the year and to reduce the value of tangible and intangible non-current assets. However,

as the directors are unable to quantify the amounts we are unable to indicate the financial effect of such

omissions.

In view of the failure to provide for the impairments referred to above, in our opinion the financial statements

do not present fairly in all material respects the financial position of Howard Co as of 30 September 2006

and of its loss and its cash flows for the year then ended in accordance with International Financial Reporting

Standards.

Your review of the prior year auditor’s report shows that the 2005 audit opinion was worded identically.

Required:

(i) Critically appraise the appropriateness of the audit opinion given by Parr & Co on the financial

statements of Howard Co, for the years ended 30 September 2006 and 2005. (7 marks)

Quotas , tariffs and subsidies

Like most wars,a trade war may bring about desired economic or political changes, but in the long run almost everyone suffers ,including those whom the trade war was meant to help.

An efficient carmaker, for example, may ask for limits of foreign imports, hoping to keep its price high without improving the quality of its products. In the end , however , other countries may retaliate with trade restrictions of their own. Consumers and businesses in both countries are then forced to buy poorly made and expensive domestic products. Trade restrictions might protect a few jobs in inefficient industries,but the whole economy often suffers by becoming less competitive in the international markets.

The most common tools for limiting imports of foreign goods and services are quotas, tariffs,and subsidies. When a country imposes a quota, it limits the quantity of certain foreign products that can be imported. A tariff is a tax placed on goods entering a country , raising the price of imported goods. A government can also use the taxpayers' money to provide a subsidy to local producers , making the price of local goods artificially lower than imported goods.

Trade barriers, like walls between feuding neighbors, are usually imposed unilaterally by one country acting on its own to limit the amount of foreign products available to local producer from foreign competition and allow them time to improve their products or lower their prices as long as they are protected from foreign competition by trade barriers.

Although trade restrictions are of dubious economic value, they have been shown to be effective in bringing about political or social change. The refusal of countries to trade and do business with South Africa, for example, was widely seen to be responsible for the decision to dismantle the system of apartheid. Trade blockades can be useful in forcing countries to change policies that violate human rights or international treaties, but as long as a sufficient number of countries join in the blockade to make it effective.

Questions for reading :

an exploration of the opportunities which its products have in the markets to which it wishes to export. The exporter may have in-house experts or he may consult other marketing experts. He may visit the overseas markets himself or send out representatives. He may receive direct inquiries from importing enterprises abroad. He may also have been contacted by overseas customers who have read his advertisements in the home or overseas press or may have obtained his address by other means.

However, it is very rare that an exporter can sell his products directly to his remote overseas customers. It is impossible for the exporter to go to every country to find out whether his products can sell in a particular market. Therefore, market research is useful both for the newly established trading companies to open business relations with overseas customers, and for the established exporters who have regular customers to expand their business.

First of all, the exporter should use trade statistics published by most countries to narrow down the scope of his research. Important information sources include: the national trade statistics which indicate the number of wholesalers, retailers and other kinds of marketing intermediaries(classified information according to the type of products) , trade journals and directories and international organizations such as International Chamber of Commerce, and China Council for the Promotion of International Trade.

After carefully considering the above information sources, the exporter will find out what countries are now importing his type of products and from what sources. He can judge the amount of business and the rate of growth or decline. Then he may choose a number of target markets.

Secondly, the exporter must bear in mind the cultural and social backgrounds of his target market, such as language, religion and local people's aesthetical viewpoints, etc. Since all these elements influence people's consumption pattems, a deep understanding of them will help the exporter to predict the changes and follow the new market trend.

Thirdly, the exporter must know the relevant government policies: What kinds of products are limited or restricted in import activities？ Are they restricted because of shortage of foreign currency, tendency to protect national industries or sanitation demand？ What kind of goods does the government levy high tax against？

Fourthly, geography may influence profoundly on the distribution of goods and the development of sales channel in a country. Temperature, altitude and humidity extremes may affect the proper functioning of some equipments. Products which function well in temperate zones do not always perform well in tropical areas. With regard to products like timber, food and paper, the amount of water absorption in transit can be very influential.

Finally, the exporter must take into account the political risk-whether there are military clashed, distribution systems-whether seaports, railroads and roads are available. Moreover, the exporter must know the local legal system since no single, uniform international commercial law governing exporting transactions exists.

Questions for reading :

Euphemism(委婉语)as a figure of speech(修辞手段)is more than just saying something unpleasant in a pleasant way. In the words of a famous sociolinguist(社会语言学家), “The euphemism is a recognition(认知)by man of man’s imperfection(不完美;缺憾), and at the same time a recognition by man that he belongs to better things. It is a false word substituted for(代替)the true word in order to soften the chock of reality(现实的混乱).”

It would seem then that the urge to speak euphemistically is a universal trait(普遍特征), but varying in scope and motive with different individuals in different circumstance (环境). Sometimes in some cases euphemisms go so far as some writers condemn(谴责) euphemisms as demoralizing(道德败坏). “In the hearings(听证会), criminality (犯罪行为) is given scores of numbing (使麻木) disguises(隐藏)… the roster(名册)seems endless: dirty tricks (卑劣行为), laundered money(洗钱), telephone anomalies(电话异常)—all perform. the same function: the separation of words from the truth.” However, the fact remains that euphemisms are very much part of the language, it is more important for us to be able to read into them to get the real meaning from them.

Since the purpose of using euphemism is to reduce the unpleasantness of a term or notion, it is natural to find many euphemistic terms used in governments’ announcements(公告), in international relations, and in the military(军事). For example, the former(前任)President of United States Ronald Reagon(里根)who had promised the American public to cut taxes called for(号召)revenue enhancements (加强预算)instead of “tax increases”. The term for “the third world countries” was at first underdeveloped nations(不发达国家), then developing countries(发展中国家)and then emerging nations(新兴国家)took its places.

1. Euphemism, as a figure of speech, is simply saying something unpleasant in a pleasant way.()

A.True

B.False

2. To some sociolinguist, people use euphemisms in order to avoid being cheated.()

A.True

B.False

3. People everywhere use euphemisms.()

A.True

B.False

4. Since euphemisms tend to separate words from truth, we have to be able to understand the real meaning from them.()

A.True

B.False

5. One seldom sees euphemisms used in international relations.()

A.True

B.False