ACCA Taxation Principles and Regulations 3

Question 1

In transfer pricing, which method compares the price charged in a controlled transaction to prices charged in comparable uncontrolled transactions?

Accepted Answer

Comparable Uncontrolled Price (CUP) Method

Answer

The CUP method is the most direct transfer pricing method, comparing controlled transaction prices directly to those in comparable arm's length transactions.

Question 2

Which of the following correctly describes a 'permanent establishment' (PE) under OECD model tax conventions?

Accepted Answer

A fixed place of business through which the business of an enterprise is wholly or partly carried on

Answer

Under OECD Model Article 5, a PE is a fixed place of business where an enterprise's business is wholly or partly conducted, subject to various exceptions.

Question 3

A company sells a capital asset for $500,000 with an adjusted basis of $200,000. The asset was held for 14 months. What is the character of the $300,000 gain?

Accepted Answer

Long-term capital gain eligible for preferential rates

Answer

Assets held more than 12 months generate long-term capital gains, which are taxed at preferential rates of 0%, 15%, or 20% depending on income.

Question 4

Under the ACCA ATX syllabus, what is the tax treatment of a company's trading losses in the UK?

Accepted Answer

Losses can be offset against total profits of the same period, carried back one year, or carried forward

Answer

UK company trading losses can be set against total profits of the same accounting period, carried back one year against total profits, or carried forward against future profits.

Question 5

Which of the following is NOT a characteristic of a tax haven as typically defined by the OECD?

Accepted Answer

High statutory corporate tax rates with broad exemptions

Answer

Tax havens are characterized by low/no taxes, lack of transparency, and no effective information exchange—not high statutory rates with broad exemptions.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA Taxation Principles and Regulations 3