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Presentation - Tax Treaty

The document discusses tax treaties, their objectives, and the methods of eliminating double taxation, including the OECD and UN models. It also covers mergers and acquisitions, outlining types, motives, and legal procedures involved in these corporate strategies. Key areas include the implications of tax treaties on income, the nature of mergers, and the distinctions between mergers and acquisitions.

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Henri Namalomba
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14 views41 pages

Presentation - Tax Treaty

The document discusses tax treaties, their objectives, and the methods of eliminating double taxation, including the OECD and UN models. It also covers mergers and acquisitions, outlining types, motives, and legal procedures involved in these corporate strategies. Key areas include the implications of tax treaties on income, the nature of mergers, and the distinctions between mergers and acquisitions.

Uploaded by

Henri Namalomba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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TAX TREATIES

OBJECTIVE

 Define the tax treaty


 Describe the existence of tax treaty
 Highlight main areas of the DTA
SCOPE

 Preliminary
 Motives of tax treaties
 Articles
International Consensus

Applicable principles
 Source principle
 Residence principle
 Elimination of double taxation:- Credit

method
Exemption
method

The consensus is reached through


internationally agreed models
MODEL
 The following models are applied:-
 OECD
 UN
 SADC
 ATAF
Tax Treaty Vs Domestic
Law
 Agreement between two states Act of Legislation

 Negotiation No negotiation
 Relief from double taxation Charge of tax
 Sharing of tax revenue Earning of tax revenue
 No frequent amendments Frequent amendments
 International law National Legislation
 Dispute settled by appellant forum/Competent
Authority Vs Dispute settled by appellant forum
/Court
PRIMARY TAX BASES

 Labour
 Consumption
 Capital
INCOMES INVOLVED
 Income from immovable properties
 Business profit
 International transport
 Dividends
 Interest
 Royalties
 Capital gains
 Income from employment and other remuneration
 Directors fees
 Entertainers and sportspersons
 Pension and annuities
METHODS OF TAXING INCOME

 Corporate tax on net profit-PEs

 Withholding tax

 Non-Resident Tax
APPLICATION OF TAX TREATIES

Areas to considers;
 What is the nature of the income

 Does the treaty apply


 Determine the applicable article

 How are the taxing right assigned


 How is the tax calculated
AID TO INTERPRETATION
 OECD/UN Model Conventions and
commentary

 Protocols

 Technical memorandum

 Parallel treaties

 International case laws.


CONDITION TO OBTAIN A BENEFIT

This consists of:


 The taxpayer must be a resident of the

contracting state

 The income must be covered by the DTA

 No exclusion by specific provision of the


Article.
SCOPE OF DTA

 Income covered
 Residence-Article 4 where a tie breaker rule

applies
 Domestic law (Key areas on Residence)
 i. Domicile
 ii. Residence
 iii. Place of management
 iv. Centre of vital interest
 v. Habitual abode
 vi Place of effective management
POEM
What define the place of effective
management

 Board meetings

 Incorporation

 Key management and commercial activities


Problem with POEM;
I. What is the place of effective management

 Manipulation in holding decisions in


favourable jurisdiction

 Location of video conference

 Its more subjective


PERMENANT ESTABLISHM(Pes)
 Article 5: It defines Pes and possible
exclusions eg Activities; control of subsidiary
by a parent.
Ways of establishing a PE
 Fixed place of business through branch, office

 Carry on business activities more than 183

days
 A construction site or project with more than

183 days of existence


 Having a dependent agent
Why do treaties limit source state taxation of
services

The following are the reasons;


 There is widely held view that services

should be performed there


 To encourage provision of scarce services
 To limit compliance cost
 Shared benefit of tax base
 Avoid double taxation
Employment
Article 15
 What kind of income

 Where is employment exercised


 How should deferred or advanced

remuneration be dealt with


TOPIC 2

MERGERS AND ACQUISITIONS


Course Outline
 Introduction
 Group of Mergers
 Type of Mergers
 Motives
 Merger Options
Introduction
Mergers and acquisitions is an aspect of
corporate strategy, corporate finance and
management

As a field it deals with the buying, selling,


dividing and combining of different
companies and similar entities to help in
enterprise growth in sector or location or new
field without creating a subsidiary or using a
joint venture
GROUP OF MERGERS
 There are two main groups of mergers: local
and cross –border
 Local mergers are those taking place within

the country`s borders while cross borders


are those that whose after effects are also
felt in Malawi.
 While companies are free to reorganize

through mergers on the local level, Section


70F is used to determine capital gains tax
issues.
MERGERS
 A merger takes place when two firms agree
to go forward as a single company or entity
rather than remaining separately owned
and or operated.

 A new company is formed after a merger


with the two prior existing companies
surrendering their shares (ownership)
TYPE OF MERGERS
 There are basically three types of mergers

 Horizontal merger
 Vertical merger
 Conglomerate merger
HORIZONTAL
 A horizontal merger takes pace between
two companies in the same sector
VERTICAL MERGER
 A vertical merger occurs when a company
merges with its suppliers

 A supplier of motor vehicle spare parts


merging with the manufacturer of motor
vehicles
ISSUES
 In a merger
 One or more companies get dissolved without
going into liquidation
 One or more companies transfer all their assets
and liabilities to another company in exchange
for shareholding representing the capital of that
company
 One or more companies transfer their assets and
liabilities in exchange for shareholding
 One or more companies transfer all assets and
liabilities to company holding all the securities
representing it capital
MERGER OPTIONS
 So mergers can be summarized as taking
the following forms
i. Mergers resulting into a new company
(both companies dissolved)
ii. Absorption by one of the two existing
companies
iii. Absorption by the parent company of a
wholly owned subsidiary
iv. Reserve merger: subsidiary absorbs parent
ACQUISITION
 An acquisition or takeover is the purchase
of one business or company by another
company or other business entity.
 Purchase may be 100% or close to 100% of

the asset or ownership equity of the


acquired entity.
 Acquisition usually refers to a purchase of a

smaller firm by a larger one. Sometimes a


smaller firm will acquire management
control of a larger and/or longer established
company.
TYPES OF ACQUISTIONS
 There are three main types of acquisitions:

 Horizontal
 Vertical
 Conglomerate
HORIZONTAL
 This is an acquisition of a firm in the same
industry as the acquiring firm. The firms
that compete with each other in their
product market
VERTICAL ACQUISITION
 A vertical acquisition involves firms at
different steps of the production process.
The acquisition by an airline company of a
travel agency would be a vertical
acquisition.
CONGLOMERATE ACQUISITION
 The acquiring firm and the acquired firm are
not related to each other in any aspect. The
acquisition of a food-product firm by a
computer firm would be considered a
conglomerate acquisition
Basic Forms of Acquisition
There are three basic legal procedures that
one firm can use to acquire another firm;
 Consolidation
 Acquisition of Shares
 Acquisition of Assets
ACQUISTION
 Shares:- Purchase of shares gives rise to the
voting right in exchange for cash, shares or
other securities

 Assets:- Purchase of all the assets of a


company gives rise to control.
 Consolidation: It is when small companies

join into larger companies that have greater


brand recognition.
Motives
Motives includes to achieve:

 i. Growth strategy
 ii. Improve financial performance
Motives;
 Economies of Scale:- Combined companies
reduce the fixed cost by removing the
duplicate departments, hence increasing
profit margin

 Economies of scope:- Efficiencies primarily


associated with demand size changes such
as increasing or decreasing the scope of
marketing and distribution of different type
of products.
 Increased Revenue or Market Share:- It
assumes that the buyer will absorb a major
competitor and thus increase its market
power to set prices.
 Synergy:- Increased order size and
associated bulk-buying accounts. This is
applicable in managerial economies.
 Taxation:- A profitable company buying a

loss making company


 Resource Transfer:- Uneven distribution of

resources and overcoming information


asymmetry.
 Hiring: -Used as a normal hiring process. To

get advantage of the expertise.


CLOSING REMARKS

 THANK YOU ALL FOR BEING A NICE


AUDIENCE

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