EXAM AVAILABLE FRIDAY 1 DECEMBER 2000

ESSAY AND EXAM ARE DUE 5.00 PM MONDAY 4 DECEMBER 2000 (by delivery to the Law School, fax to Bridget Nguyen-Ngoc (02) 9351 0290 or email bridget@law.usyd.edu.au)

Where the essay is to form 1/3 of your assessment, its length must not exceed a maximum of 3,600 words (12 pages). Where the essay is to form 2/3 of your assessment, its length must not exceed a maximum of 7,200 words (24 pages).

If you submit a 1/3 essay you must answer two of the following three exam questions (you can choose whichever questions you like). If you submit a 2/3 essay you must answer only one of the following three exam questions (you can choose whichever question you like). Each exam answer will form 1/3 of your assessment. The length of an answer must not exceed a maximum of 2,400 words (8 pages) (if you do two answers, each answer must not exceed this limit).

Terry Transfer carries on business as a sole proprietor. During year one, Terry transfers his business to Transfer Co, a corporation. At this time, the business has no trading stock (inventory) and its depreciated assets have a written down value of $100, which equals the market value of the assets. The business also has a non-depreciable capital asset that cost Terry $100 but which has a market value of $200. At the start of year two, Terry sells his shares in Transfer Co to Double Co, a corporation, for a price of $300. During year three, Transfer Co sells the non-depreciable capital asset for $200.

Outline the tax consequences of the above facts under the income tax laws of three of the following countries; Australia, Germany, the UK and the US. Identify any reliefs available as well as any potential incidence of double taxation together with any offsetting considerations. How would your answer differ if Double Co had acquired an additional capital asset during year two that it disposed of in year three for a capital loss of $100? For the purpose of this problem, ignore the US S Corporation regime and the UK small company profits regime. Further, assume that US corporation tax is imposed at a flat rate of 35%.

Terminator Co is a corporation incorporated in year one. It issues ten shares to Tracy Terminator at a price of $1 per share. For year one, Terminator Co derives $100 domestic source profits which, for whatever reason (which you need not investigate), are of a type granted an exemption by the tax law. During year one, Terminator Co distributes $50 as dividends (the amount received by the shareholders, grossed-up by any dividend withholding tax only, is $50). For year two, Terminator Co has $100 profits, which are taxed at the headline corporate tax rate. During year two, Terminator Co does not distribute any dividends. Terminator Co is liquidated at the start of year three. The liquidator distributes to Tracy all profits remaining from years one and two together with the $10 contributed to capital.

Outline the tax consequences of liquidating Terminator Co under the income tax laws of three of the following countries; Australia, Germany, the UK and the US. Does this treatment involve an incidence of double taxation? Compare this treatment with one in which Terminator Co is not liquidated at the start of year three but rather distributes its retained profits.

Collat-Benefits Co is a corporation. During year one, Collat-Benefits Co engages in the following transactions:

Outline whether these transactions give rise to a "dividend" under the income tax laws of three of the following countries; Australia, Germany, the UK and the US. Do the transactions under (b) and (c) give rise to an amount that must be included in calculating the taxable income of Collat-Benefits Co? should it? if so, how much? Would your answer with respect to (b) or (c) differ if Collat-Benefits Co only has five shareholders? Are the payments under (e) and (f) deductible for Collat-Benefits Co? How will any "dividend" you identify be taxed in the hands of the shareholder?