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Banking and Finance · 200 Level
This is the complete lecture note for TAX 213 Business Taxation I, prepared for Banking and Finance students at 200 Level. You can read it online below, open it in the full viewer, or download the PDF for offline study. It pairs with the course's video lectures, so you can read and watch together.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS TAX 213: Business Taxation I (3 Units C: LH 45) Course Code: TAX 213 Course Title: Business Taxation I Course Unit: 3 Units C SERIES 1 Taxation of Specialized and Non-Resident Companies SERIES 2 Pioneer Legislation and Industrial Development SERIES 3 Taxation in Financial Institutions and Agricultural Businesses SERIES 4 Education Tax and Administrative Procedures SERIES 5 Company Accounts, Capital Gains, and Relationship with CITA & PPTA Series 1 Taxation of Specialised and Non-Resident Companies • Part 1: Taxation of Insurance Companies 1.1: Principles of taxation in insurance businesses 1.2: Computation of taxable income for insurance companies • Part 2: Taxation of Unit Trusts and Corporate Restructuring 2.1: Tax treatment of unit trusts 2.2: Tax implications of mergers, acquisitions, and takeovers • Part 3: Taxation of Non-Resident Companies 3.1: Tax rules for air transportation businesses 3.2: Tax rules for shipping companies • Part 4: Administrative Procedures and Appeals for Specialised Companies
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 4.1: Determination and assessment of taxes 4.2: Objections and appeal procedures Introduction Taxation plays a crucial role in shaping the operations of companies, especially those that fall under specialised categories or operate across borders. Insurance companies, unit trusts, and businesses involved in mergers or acquisitions face unique tax challenges. Similarly, non-resident companies engaged in air transportation and shipping must comply with specific tax rules that differ from those applied to resident companies. Understanding these distinctions is vital for anyone studying business taxation. The aim of this Series is to equip you with the knowledge and analytical skills required to compute, assess, and evaluate taxation in specialised and non-resident companies. We shall commence this Series by examining the taxation of insurance companies, focusing on how their unique business models affect taxable income. Next, we will explore the taxation of unit trusts and the implications of corporate restructuring such as mergers and acquisitions. Following that, we will analyse the taxation of non-resident companies, with particular attention to air transportation and shipping businesses. Finally, we will wrap up by considering the administrative procedures involved in determining, assessing, and appealing taxes for specialised companies. Series Learning Outcomes Upon completing this Series, you should be able to: • SLO 1.1 define the principles of taxation as they apply to insurance companies, • SLO 1.2 compute taxable income for insurance companies using appropriate methods, • SLO 1.3 explain the tax treatment of unit trusts, • SLO 1.4 analyse the tax implications of mergers, acquisitions, and takeovers, • SLO 1.5 evaluate the taxation rules governing non-resident companies in air transportation and shipping, and • SLO 1.6 describe the procedures for determination, assessment, objections, and appeals in specialised company taxation.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Part 1 Taxation Of Insurance Companies 1.1 Principles of taxation in insurance businesses Insurance companies are subject to unique taxation rules because their operations differ from those of ordinary businesses. An insurance company is a financial institution that provides risk coverage to individuals and organisations in exchange for premiums. The taxation of insurance companies is guided by the principle that their income is derived not only from premiums but also from investments and reserves. The taxable income of an insurance company is generally calculated by considering underwriting profits, investment income, and allowable deductions. Unlike manufacturing firms, insurance companies must account for claims paid, outstanding claims, and technical reserves when determining taxable profits.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Figure 1.1: Income and expense structure of insurance companies Fill-in-the-blank: Insurance companies derive their taxable income from premiums, investments, and ________. 1.2 Computation of taxable income for insurance companies The computation of taxable income for insurance companies requires careful adjustment of their financial statements. Tax computation refers to the process of determining the amount of tax payable by applying statutory rules to the company’s income. For insurance companies, this involves recognising premium income, deducting allowable expenses, and adjusting for reserves.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Life insurance companies may be taxed differently from general insurance companies. Life insurers often maintain long-term reserves, which affect the timing of income recognition. General insurers, on the other hand, deal with short-term claims and must adjust for outstanding claims at the end of each financial year. Table 1.1: Taxation differences between life and general insurance companies Feature Life Insurance Business General (Non-Life) Insurance Gross Income Base Investment income (interest, dividends, rents) and fees/commissions. Gross premiums plus investment income and commissions. Treatment of Premiums Premiums are generally excluded from "Investment Income" for tax purposes. Gross Premiums are the primary taxable income source. Key Deductions Claims paid and relevant management expenses (WREN). Claims paid, management expenses, and Reinsurance premiums. Statutory Reserves Actuarial Reserves: Based on the valuation of future liabilities. Unexpired Risk (AUR): Often 45% for general and 25% for marine/aviation. Loss Relief Losses can be carried forward indefinitely against life profits. Losses can be carried forward indefinitely against general profits. Minimum Tax 0.5% of Gross Premium or Investment Income. 0.5% of Gross Premium. Fill-in-the-blank: Life insurance companies are distinguished from general insurance companies in taxation because they maintain ________ reserves. Pilot questions 1.1 1. Which of the following is a primary source of taxable income for insurance companies? a. Premiums
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS b. Salaries c. Donations d. Grants 2. What is the term used to describe the process of determining the amount of tax payable by an insurance company? a. Tax computation b. Tax evasion c. Tax avoidance d. Tax exemption 3. Which type of insurance company maintains long-term reserves that affect income recognition? a. General insurance company b. Life insurance company c. Marine insurance company d. Health insurance company 4. Outstanding claims are considered in the taxation of which type of insurance company? a. Life insurance company b. General insurance company c. Both life and general insurance companies d. None of the above 5. Investment income of insurance companies is treated as: a. Non-taxable income b. Taxable income c. Exempted income d. Deferred income Part 1.2 Taxation Of Unit Trusts And Corporate Restructuring 1.2.1 Tax treatment of unit trusts A unit trust is a collective investment scheme where investors pool their funds to purchase a diversified portfolio of assets. Each investor holds units that represent a proportionate share of the trust’s assets. The taxation of unit trusts is distinctive because the trust itself is not always taxed as a company, but rather as a pass-through entity where income is distributed to unit holders.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Tax rules generally require that income distributed to unit holders be taxed in their hands, while the trust may enjoy exemptions on certain investment gains. This ensures that taxation occurs at the level of the investor rather than the trust itself. Box 1.1: Key features of unit trust taxation Feature Direct Investment (Individual) Investment via Unit Trust (Mutual Fund) Dividend Income Tax 10% Withholding Tax (WHT) deducted at source. Treated as Franked Investment Income; no further tax at the fund level. Interest Income Tax Taxed at the individual's progressive rate (up to 25%). Exempt at the fund level if derived from Gov. Securities. Capital Gains Subject to thresholds (exempt if gain < ₦10m). Typically exempt at the fund level due to "reinvestment relief." Management Costs None (but requires personal time/research). Deductible: Fund manager fees are subtracted before tax is calculated. WHT on Distribution N/A 10% WHT on the final distribution (usually the final tax). Tax Efficiency Moderate: Investor must track and claim reliefs manually. High: The trust acts as a "tax shield" by pooling exemptions. Fill-in-the-blank: Income distributed by a unit trust is taxable in the hands of ________. 1.2.2 Tax implications of mergers, acquisitions, and takeovers Corporate restructuring through mergers, acquisitions, and takeovers often leads to significant tax consequences. A merger occurs when two companies combine to form a single entity, while an acquisition involves one company purchasing another. A takeover refers to the acquisition of control over another company, often through the purchase of a majority of its shares. Tax implications may include capital gains tax on the disposal of shares, stamp duties on transfer of assets, and adjustments to the tax base of the new entity. In some jurisdictions, tax reliefs are provided to encourage restructuring, such as rollover relief, which allows deferral of capital gains tax.
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