The document provides summaries of exam performance for various accounting qualification papers in 2009. For Paper I, the general performance was mixed but improved over the previous year, with the problem questions being more poorly answered. Paper IIA saw reasonable knowledge of UK tax law changes but uncertainty around details. Paper IIC performance in Hong Kong was generally good while Paper IID in Singapore showed uneven mastery of concepts across questions. Paper IIE in Malta saw most candidates effectively answering their chosen questions.
The document provides summaries of exam performance for various accounting qualification papers in 2009. For Paper I, the general performance was mixed but improved over the previous year, with the problem questions being more poorly answered. Paper IIA saw reasonable knowledge of UK tax law changes but uncertainty around details. Paper IIC performance in Hong Kong was generally good while Paper IID in Singapore showed uneven mastery of concepts across questions. Paper IIE in Malta saw most candidates effectively answering their chosen questions.
The document provides summaries of exam performance for various accounting qualification papers in 2009. For Paper I, the general performance was mixed but improved over the previous year, with the problem questions being more poorly answered. Paper IIA saw reasonable knowledge of UK tax law changes but uncertainty around details. Paper IIC performance in Hong Kong was generally good while Paper IID in Singapore showed uneven mastery of concepts across questions. Paper IIE in Malta saw most candidates effectively answering their chosen questions.
The document provides summaries of exam performance for various accounting qualification papers in 2009. For Paper I, the general performance was mixed but improved over the previous year, with the problem questions being more poorly answered. Paper IIA saw reasonable knowledge of UK tax law changes but uncertainty around details. Paper IIC performance in Hong Kong was generally good while Paper IID in Singapore showed uneven mastery of concepts across questions. Paper IIE in Malta saw most candidates effectively answering their chosen questions.
125 candidates sat this examination (as compared with 109 candidates last year). The examination paper was divided into two parts. Parts A and B comprised five essay questions and two problem questions respectively. Candidates were required to answer four questions composed of either two questions from each part or three questions from part A and one question from part B.
Most candidates used the time available (3 hours) effectively and answered four questions in accordance with the examination rubric, and a fair number opted to answer each of the problem questions. In relation to the problem questions, the performance was generally disappointing and a significant weakness of many of the answers was an inability to identify key issues and to apply relevant law/principles to the facts. A perusal of the marks awarded for these questions (6 & 7) shows that question 6 was relatively poorly answered and the pattern of marks awarded for question 7 was not impressive. Overall, the general performance with regard to the essay questions was much better. Questions 2, 3 and 4 proved to be particularly popular and were usually well answered whilst, by comparison, question 1 was attempted by far fewer students whose knowledge of the relevant subject matter tended to be limited and who often took a rather narrow view of its ambit.
Overall, the standard of the scripts was mixed. It was pleasing that 4 candidates were awarded marks of 70 or above. The performance of the other candidates was relatively evenly balanced between those within the 50 pus range and those achieving marks of 49 or below. Also, the number of candidates within the 39 or below band (27%) was encouragingly lower than the number of candidates falling within that band last year (40%).
Paper IIA United Kingdom
Question 1
Question spotters should have been well prepared for this question as, if one was looking for a subject which had been topical over the last twelve months, one would quickly have alighted upon the changes to the tax of foreign domiciliaries in the United Kingdom. It was no surprise, therefore, to find that the majority of candidates chose to answer this question and that the answers were generally quite satisfactory without ever verging on the brilliant.
The examiner thought that he was being clear with the instructions that the concept of domicile should be explained briefly (ie not taking up 50% or more of the answer) and that the discussion of its importance for UK tax should give emphasis to the Finance Act 2008 changes but not at the expense of everything else. Some candidates did fall into the trap of devoting far too much of their answer to explaining what domicile meant rather than explaining the tax effects and many candidates chose to ignore taxes other than income tax.
In general, candidates showed reasonable knowledge of the 2008 changes although the details of the 30,000 charge and, in particular, the treatment of remittances and their relationship with the charge were the subject of some uncertainty and confusion. It is suspected that most of the candidates had not had any experience of dealing with these issues in practice.
Question 2
This was an extremely popular question covering a broad range of issues relating to businesses looking to expand their operations outside the United Kingdom. This is the sort of question which comes up regularly in practice and it was pleasing to see that most candidates were able to
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identify the major corporate tax issues including the controlled foreign company and transfer pricing matters as well as the distinctions between branches and subsidiaries. Perhaps reflecting a greater emphasis on corporate tax expertise and experience among the candidates, the answers on the employment and VAT issues were generally weaker although most candidates were able to identify the flaw in the finance directors VAT saving scheme.
Question 3
This was not a popular question and it appeared that some of those who attempted it did so out of desperation as they did not discuss four cases. Most of the candidates omitted the Willoughby and GCA International Ltd cases (actually nobody answered on the latter, which was a surprise as it is probably one of the easiest to explain). Knowledge of Gaines-Cooper and Cadbury Schweppes was significantly greater than that of the other cases offered.
Question 4
The application of UK specific knowledge and general OECD treaty principles was generally very good. However, knowledge of the UK-US treaty and in particular the limitation on benefits and conduit arrangement provisions was generally poor, with very few candidates demonstrating much knowledge in this area. Whilst the UK-US treaty is a narrow area of the syllabus, the treaty is widely used in practice and candidates were expected to have some knowledge of the anti- avoidance principles in the treaty.
Question 5
This was a very topical question based on a number of corporate inversions to non-UK ownership which have generated significant press and media coverage over the last 18 months. Whilst it was not answered by as many candidates as expected, those who did answer generally produced good responses, and picked up relatively easy marks in a range of different areas such as corporate residence (UK and OECD definitions), transfer pricing and treaty withholding taxes.
Question 6
This question was not widely answered. Those that did had a good grasp of the basic knowledge of interest payments, withholding tax and thin capitalization. However, only a few candidates scored well on the arbitrage rules, the treaty position of the partnership claiming treaty benefits, and the UK reorganization rules on transferring a business and loss carry over.
Question 7
A generally well answered question, with most candidates having a good understanding of the DTR and EUFT rules in part (b). The only part of (a) that was not well answered was the difference in CFC treatment between the recently acquired position (motive test period of grace) and the future position if activities are changed (prejudicial to motive test period of grace).
Paper IIC Hong Kong
Candidates performance is good overall.
Two candidates got over 60. They demonstrated their good understanding of all relevant knowledge and were able to handle the questions in a logical way. They achieved a standard of good performance in the examination with good understanding of the tax law and practices, proper referencing, necessary analysis and application.
One candidate had marginally passed. She/he barely addressed the questions and just demonstrated a minimum understanding of the concepts involved. She/he demonstrated a
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standard of marginally acceptable performance in the examination with some errors of understanding and application of the tax law and practices.
Two candidates failed because they were unable to meet a minimum standard of passing the examinations with major errors of understanding or omission of explanation of the tax law and practices. Specifically, performance on Q1 (anti-avoidance question) was poor. Candidates were unable to quote the relevant provisions of the Hong Kong Inland Revenue Ordinance and discuss how the provisions can be applied to the case. Incidentally, similar situation was observed in last year.
Performance on Q3 (stamp duty) and Q5 (salaries tax) was better than other questions.
Paper IID Singapore
All candidates attempted questions 1 and 3. Despite being relatively straightforward questions, the candidates failed to provide a more comprehensive analysis of the nature and true characterisation of some of the sums in question, especially in relation to termination payment and the foreign-source income. Most were content to assume that the payment was either taxable or otherwise without any attempt to provide the basis for the assertions. With the exception of 1 candidate, the rest showed a competent grasp of the legislative provisions involved. Most of the candidates show awareness of applicable judicial decisions but failed to provide the actual case citations. Most candidates were able to identify and ascertain the eligibility for tax credits.
The candidates who answered the other questions provided reasonably good responses. Most of the answers displayed a fairly good grasp of the concepts and issues being addressed. Where tax computations were required, the candidates were able to show a good understanding of the technical computational rules although there were several instances of mistakes that were clearly committed out of carelessness. Overall, the answers reveal a certain degree of unevenness in the mastery of diverse concepts and issues being tested in the questions.
Paper IIE Malta option
The examination paper consisted of seven questions. Candidates were expected to answer four out of seven questions. Each question was sub-divided into 3 sub-questions. Each question contemplated an element of theory and a practical application of such theory.
Most of the candidates used the time available (3 1/4 hrs) effectively and answered all their questions. A perusal of the marks awarded shows that the absolute majority of the students warranted the award of a mark over 50%. There was an isolated case when a student failed to answer significant sections of some questions. The standard of the candidates was rather high with several candidates scoring high marks in the theoretical questions. On the other hand, most students appeared to struggle with the practical questions. The application of theory to practice was a challenge in which only a small percentage of the candidates succeeded. The same applies to the application of principles of UK tax law to Maltese tax law. Question 5 proved to be particularly popular with students. Most candidates appear to have been very well prepared in relation to this topical subject and its seemingly infinite permutations. The candidates who achieved the higher marks were the candidates who took the initiative to fragment their answers step by step. The latter approach evidenced the level of analytical skills which was expected. However, more attention to case law should have been given in relation to the analysis of domestic tax rules. The understanding of the taxability of fringe benefits tended to be satisfactory but computational skill in relation to fringe benefits was at marginal level.
Understanding of interest expenditure rules (Question 7) was rather poor with most students missing some of the fine points completely. However, most students showed a good grasp of the basic subjects (tax accounting, participation exemption, interest/royalty exemption).
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Overall, the standard of the scripts was good.
Paper IIF Australia option
Question 1
The answers to this question were generally well handled but with insufficient focus being given to the relevance of source in applying Australias double tax agreements.
Most students handled the broad issue of source well, looking both to the limited statutory source rules and the more detailed common law source rules.
However, in the context of Australias double tax agreements little attention was given to, for example, Article 22 of the Australia/Malta agreement which deems Australian source in a broad range of circumstances and no one really examined how that deemed sourcing is likely to be interpreted by courts if pushed for an answer.
Question 2
This question was not well handled by those students who attempted it with very little attention being given to the basic issues as to, for example, whether RDS would be treated as a trust or a company in Australia, or possibly neither, and whether the Vauru Approved Membership Rights (VAMs) would be treated as shares or interests in a trust for Australian tax purposes. If RDS is not a company or a trust, or if the VAMs do not constitute shareholding or trust interests, it may well be the outcome that none of Australias attribution rules would apply. This requires careful analysis before attempting broader answers to the question posed.
Very little attention was given to these issues by those students who attempted this question.
On the other hand, the question of the nature of the income earned by RDS and its relevance to any attribution to Australian taxpayers was well and generally comprehensively considered.
Question 3
Again this question was not well handled by those who attempted it with little attention being given to:-
1. The CFC/FIF issues which clearly arise in the context of the attribution rules; 2. Division 15 which clearly has application in relation to insurance premiums; 3. The decision in WD & HO Wills v FCT which clearly has application in relation to the possibility of Part IVA of the Act applying in the circumstances that have been presented.
On the other hand, the general application of Part IVA was handled well as were general discussions regarding deductibility and transfer pricing.
Question 4
Overall this question was quite well handled with people addressing each of the four matters referred to in some detail.
Little attention was however given to the concept of beneficial ownership in the dividend interest and royalty articles which has attracted much discussion judicially in various international fora. The application of Article 16 of the Australia/US double tax agreement was generally well considered.
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Question 5
Surprisingly few students attempted this question but those that did did a fairly good job in describing the facts, the arguments put and the conclusion reached by the court. The question as to how the case would be decided today was handled less well with insufficient detail being given to developments that have occurred since the two cases were decided. In particular, in relation to McDermotts case, DTA developments should be considered and in relation to Lamesa, changes to the International Agreements Act should be specifically referred to and the consequences of that amendment should be discussed in detail.
Question 6
This was one of the most popular questions and the answers were of the highest standard in response to any of the questions asked.
Generally the four propositions were well considered and well-crafted answers were provided. In some poorer responses in considering in particular proposition 4, the answers were somewhat superficial and failed to highlight, for example, the limited scope of section 23 AJ. For example, it does not apply to non-corporates or portfolio dividends and further it does not apply where there has been prior attribution of income under the CFC or FIF measures. In those cases, section 23 AI or 23 AK would apply to prevent double taxation and section 23 AJ would be excluded.
Question 7
This question regarding the application of Australias fringe benefits tax was generally well handled with good attention being given to who pays the tax, the FBT exemptions and the FBT concessions that may apply. Simplification issues were not well considered and there are some obvious measures that might be appropriate. For example, aligning the FBT tax year with the income tax year would considerably ease the compliance and administration expenses associated with FBT. Levying the tax on employees would make it conceptually more consistent but would probably add to complexity in administration. None of these matters were really considered in any detail by candidates.
Paper IIIB EC option
General remarks
Generally, standards continue to rise but many candidates failed to achieve a pass on this examination. A number of candidates endeavoured to answer the examination questions by using scripted answers prepared in advance. Obviously, a script on a certain topic like exit taxes can help, but the answers have got to be related to the questions asked and not the question the candidate has prepared and would like to have been asked. Consequently, many candidates struggled to achieve pass marks in many questions.
A second comment worth noting is that a number of candidates failed to discuss the Courts jurisprudence beyond naming cases. Others chose to write detailed paragraphs out of the Van Raad book without making any comment as to why the cases supported their answers. Still others chose to give a two sentence discussion of the main cases losing easy marks in the process.
As with any examination, showing knowledge is the key to success. With access to the Van Raad book, there should be no reason for well-prepared candidates to have feared any of the questions on this years examination; there was a good spread of topics, including state aid and VAT, yet many candidates failed to show the necessary preparation for an examination of this magnitude. Candidates should not forget that the ADIT is a professional qualification. From reading many of
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the answers, it is apparent that many candidates are simply unready to advise clients on EC tax matters and to be paid for that advice.
The Examination Questions some comments
Q1. This was answered by the majority of candidates. There was a poor discussion of the role of the Court beyond that mentioned in the EC Treaty. For instance, few candidates discussed the role played by the Advocates General and their Opinions. The question asked candidates to describe and examine the role of the Court in matters of taxation. Taxation is not simply direct taxation. Easy marks were lost by candidates who failed to relate their answers to the question asked or who simply cited cases without making a link to the question.
Q2. This question was about a single justification. It did not require a discussion of the internal market and a listing of the four freedoms and all the other justifications and lists of cases showing when the Court used the justifications. Not a single candidate referred to the origin of this justification in the Opinion of AG Maduro in Marks and Spencer. Generally speaking, this question was very poorly answered. Asked to analyse the statement, one candidate wrote a prepared script on the fundamental freedoms. Another discussed the facts of the N case at length and another simply re-wrote the question wasting valuable time and scoring zero or almost zero marks in the process. Interestingly, no candidate made reference to Cassis de Dijon.
Q3. This question was rarely answered and those candidates that attempted it were totally unprepared. The question asked for a Memorandum on the Communitys recent activities in its fight against VAT fraud. The answer was available on the Commissions taxation website for any candidate interested in this aspect of VAT and on the Courts website in relation to Missing Trader case law. Only one candidate referred to the Courts jurisprudence and few candidates discussed the activities of the Commission and Council, indicating a complete lack of knowledge of this topic. Instead, a number of candidates listed provisions of the VAT Directive from the Van Raad book. Another produced a scripted answer which produced no discussion of the question asked in the examination.
Q4. This question concerned capital gains tax cases. This was translated by a number of candidates into exit taxes and companies moving to other jurisdictions (like discussions on Daily Mail and Cartesio). Few candidates explained the link between companies moving and capital gains taxes and few candidates discussed the capital gains tax case law of the ECJ beyond the exit tax cases. One candidate chose to discuss the Courts dividend taxation cases only.
Q5. This was very poorly answered by most candidates. A number failed to discuss either of the cases mentioned in the question. Others chose to write out chunks of material from the Van Raad book scoring virtually no marks and wasting valuable time. Few candidates discussed the cases at any level despite the question clearly asking for a Memorandum on the two cases, highlighting the key taxation issues. A well prepared candidate should have been able to discuss the two cases and weave the basic state aid material into a coherent answer. This question warranted 25% of the examination marks and given that the question asked for a discussion of two designated cases only, it should have been a relatively straightforward task to construct a reasonable answer.
Q6. Only a handful of candidates spotted the Dutch Ship Registration case and Halliburton as being highly relevant. Those that did scored high marks. Good lay-out of the letter scored easy marks. Failure to spot the relevance (or existence of) the aforementioned cases was crucial to the level of advice offered. That said, clever (wrong) arguments scored marks. Many candidates went off in a tangent and focused on the EU rights of the USA directors and the USA parent company getting entirely lost in the process.
Q7. Finally, this question which was attempted by nearly all candidates with many having a scripted answer prepared on the EC/International topic. The answers, however, of many
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candidates failed to answer the question which required an analysis of a simple statement. Easy marks were lost by candidates who spent pages writing about tax treaties and the OECD Model and who failed to answer the simple question asked despite having sufficient knowledge (apparent from their scripts) to make a decent shot at it. Too many candidates trotted out the D case and Bouanich without really explaining their relevance to the question asked. Still more candidates failed to discuss the D case or Bouanich in enough detail to collect the marks on offer.
As this is my last ADIT Examination let me take the opportunity to thank Roz Baxter for her dedicated work behind the scenes. When we started this project some five years ago, eight students took the EC tax option, this year there were 41/42 scripts.
Paper IIIC UK option
This was the fourth sitting of the Paper III UK Option with only one candidate sitting the paper. The level of overall knowledge shown by the candidate was below the required level expected and lacked detail other than on one of the four questions attempted.
The intention with this paper is for a general knowledge of UK taxation as a secondary jurisdiction but from an international perspective.
It is intended that the format, required level of knowledge and mix of UK and International aspects for future sittings will continue to be in line with this and previous papers.
Future candidates should again review each of the questions set as a guide for future examinations both in terms of format and technical content.
The seven questions set can be summarised as: -
Q1. A question requiring an understanding of the definition and factors affecting a companys residence and the term permanent establishment and the determination of profits for UK tax purposes.
The answer to this question lacked detail. Whilst reference to central management and control was made, only minimal mention was made of how this term should be incorporated.
Again whilst the basic detail of the expression permanent establishment was made the candidate failed to expand on the term and made little comment on how the profits are to be determined.
Much greater content and detail was needed for this question.
Q2. A question on how a persons domicile is determined for UK tax purposes and the effect of non-UK domicile status both before and after the changes introduced by the Finance Act
This question was not attempted.
Q3. A question on the tax differences arising between property asset sales by a company compared with a share sale both at the individual and corporate level. Including details on de- grouping charges. Requiring understanding of the taxation of corporate chargeable gains and individual capital gains.
Again while the answer was marginally better than for question one it still lacked sufficient detail or expansion of basic comments and understanding thereof. Minimal comments made regarding the extraction of profits from a company post sale. Reference made to Entrepreneurs relief despite the group being an investment (as opposed to a trading) group.
Again the answer lacked sufficient detail or content.
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Q4. A general question requiring detail and understanding of the transfer pricing regime in the UK and any available exemptions and documentation.
This question was not attempted.
Q5. A question on set up of new business ventures in both the UK and abroad. Requiring discussion of possible structures in view of potential losses and R&D relief.
A reasonable attempt at this question with good coverage of difference between corporate, group or stand alone, and non-corporate loss relief. Reasonable knowledge shown of R&D and substantial shareholding exemption.
Q6. A question on the method of relief for UK tax purposes for capital expenditure and the difference that can arise on timing of relief for capital and revenue expenditure.
Whilst reasonable comments were made regarding the reliefs available for capital expenditure no comments were made regarding revenue expenditure, for example that may have been capitalised or had been accrued, nor mention of GAAP or the accruals concept etc. In a two parted question of this type it is important to attempt both parts as no matter how well one part is answered it will still only be allocated a proportionate part of the available marks.
Q7. A question on the sources of UK tax legislation and the interpretation thereof by HMRC and the Courts. Also on the impact of European Law and the Human Rights Act on UK legislation.
This question was not attempted.
As with all examinations marks were allocated for lay out and presentation
Paper IIID China
There were eight papers written. Other than the one paper scoring 50%, others scored between 68% to 75%. As such, the overall result is satisfactory.
There were 6 questions in the exam and candidates were required to answer four questions: question 1 or 2, question 3 or 4, question 5 and question 6. Most candidates answered questions 2, 4, 5 and 6. Only one candidate did question 1 as opposed to question 2. The answers to question 4 and 5 were generally better, perhaps because the issues were already more or less identified in the questions. The issues in Question 2 and 6 were more general, requiring candidates to identify the issues before answering the questions. Answers to question 4 were the best across the board and the answers to question 6 were the poorest.
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Paper IIIE Australia
The candidate demonstrated a sound knowledge of most core concepts. However, there was a notable lack of awareness of particular international tax concepts especially controlled foreign companies and accruals. The question where these were important was poorly done. Knowledge of residence and source concepts was also limited to basic areas. Knowledge of principles of income and deduction was sound.
Order in Respect of (1) Shayona Petrochem Limited and Its Directors Viz. (2) Mr. Lalit Bhagwandas Patel, (3) Mr. Kirit Amichand Patel and (4) Mr. Shashikant Mohanlal Doshi