The following information is relevant to Mandy Ltd (Ghana) a subsidiary of Menkay Incorporated, a company resident in Japan.
Following Mandy Ltd operational challenges, a loan of US$1,500,000 was secured from its parent company in 2019 year of assessment.
Additional information relevant to Mandy Ltd’s operations:
Required:
Determine the tax implication of the above transaction. (6 marks)
View Solution
Loan Secured: USD 1,500,000
Interest on the loan GH¢300,000
Foreign Exchange loss GH¢105,000
Exchange Rate GH¢5.73 to USD 1
Equity:
Share Capital GH¢ 150,000
Retained Earnings GH¢ 300,000
Total Equity GH¢ 450,000
Safe Harbour Rule is Debt: Equity Ratio 3: 1 respectively
Translation of loan into Ghanaian Cedis
USD 1,500,000 x 5.73 =GH¢8,595,000
Allowable debt = 3 times equity
3* 450,000= 1,350,000
Tax implication
- Interest of 8% shall be imposed on 300,000 (8% *300,000) = GH¢ 24,000
- Interest allowable is (300,000-252,879.58) = GH¢ 47120.42
- Foreign Exchange allowable (105,000-88,507.85)= GH¢ 16,492.15
(6 marks evenly spread using ticks)