Page 285 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes Self Assessment

Fill in the blanks:

5. Advance Tax is liable to be paid by all assesses like Salaried, Self Employed, Businessman

etc. before the filing of …………………….

6. If advance tax paid in the first two instalments is less than specified, simple interest @ 1%
per month is charged on the deficit amount for a period of …………… months.

7. For ………………… with Salary as the sole source of income, Advance Tax would be taken
care of by the TDS deducted by the employer at the time of payment of salaries.
8. For all ……………… earning income from any source other than salary, Advance Tax is
payable in instalments.

Caselet Citi’s Deferred Tax – An Asset of Dubious Worth
itigroup is at the centre of a dispute among analysts and accounting experts over
whether it should set aside funds to cover $50bn of deferred taxes, a move that
Cwould reduce its capital buffer and weaken its balance sheet. As it says, the assets,
a product of the accounting principles applied by US tax authorities to companies, are
crucial to Citi’s financial health. At the end of the second quarter, deferred tax assets made

up more than a third of Citi’s tangible equity – a measure of balance sheet strength.
The US bank has rebuffed calls to reserve for its DTAs – the biggest held by a US
company – arguing that it will earn enough money in the future to justify keeping the
assets on its books. Under accounting rules, Citi has to be confident it will earn $99bn in

taxable income during the next two decades to avoid making provisions for DTAs. In the

2002-2006 periods Citi had annual pre-tax profits of at least $20bn.
However, some argue Citi is being too optimistic given its recent record – its pre-tax losses
in 2008 and 2009 topped $60bn – and continued global economic uncertainty. Deferred tax
calculation is at best a black art. In this case Citi says that because it has either losses it can
carry forward or the benefit of allowances it has not yet claimed their cash value for tax

purposes.
The most significant source of these timing differences is the loan loss reserve build, which

accounts for approximately $15 billion of the net DTA. In general, Citi would need to
generate approximately $86 billion of taxable income during the respective carry forward
periods to fully realize its U.S. federal, state and local DTAs. First of all, two generic things
have to be noted there. Note that its clear future tax revenues from banks are going to be
severely limited by the carry forward of tax losses. Second, note the injustice in this: those
losses were already state funded.
Citigroup’s ability to utilize its deferred tax assets (DTAs) to offset future taxable income
may be significantly limited if it experiences an “ownership change” under the Internal

Revenue Code.
As of December 31, 2009, Citigroup had recognized net DTAs of approximately $46.1
billion, which are included in its tangible common equity. Citigroup’s ability to utilize its
DTAs to offset future taxable income may be significantly limited if Citigroup experiences

an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as

amended (the Code). In general, an ownership change will occur if there is a cumulative
Contd...

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