22 Tax accounting PEPREPPY There are some types of taxin the boxes below, but some letters are missing. Can you complete the words? encima or te Which taxes in the boxes above are you familiar with? Briefly explain each one. ‘What do foreign companies and individuals need to know about the taxation system in your country? 1 Amanagerhas asked his accountant to explain depreciation, Listen and answer the questions. 1 What happens to fixed assets? 2 How do accountants do this? 3. What are the five methods of depreciation the accountant mentions? as. \ —_ bd - Se of-the-y du ____ ofp. eh fu ID You Know? Inthe U.S. and Britain accounting methods for income tax and financial reporting are independent of each other. This means that there can be large differences between the profit recorded in the financial statements and the profit for the income tax calculation.UNITS Taxaccounting | 23 2 Now look at the accountant’s list of definitions. Can you match them to the methods of depreciation she mentioned in exercise 1? 1 i The asset is depreciated by a constant amount every year. The depreciation expense for each year is EN calculated by subtracting the salvage value from the acquisition cost, and then dividing the difference by the pan useful Life of the asset. 2 {The depreciation expense is calculated by first subtracting the salvage value from the acquisition cost. The difference is multiplied by a fractional amount, where the denominator and numerator are based on the addition of the figures in the asset’s useful life 3 : The depreciation is ‘accelerated’ by ‘this method, 90 that the expense is greater in the first years. the salvage value is ignored in the calculation, but the asset will not be depreciated below this value. ‘the expected usage of the asset is taken into account in determining the rate of depreciation. 5 ‘The expected output of the asset is ‘taken into account in determining the rate of depreciation. 3 Prepare a short presentation on depreciation methods. First read the questions below and note down your answers. Then organize your notes and give your presentation. * What depreciation method does your company/client use on its assets? Why has your company/client chosen that method? What are the alternatives in your country for depreciating assets?24 | UNITS Taxaccounting 6 4 Anaccountant explains the taxation expenses disclosure requirements to a CEO. Listen to the dialogue and answer the questions. ‘a How does the accountant calculate the profit before tax figure? b Why is the taxation amount only an estimate? c Now listen again and complete the CEO’s notes. Do they file the interim tax return? We need it to justify Iethere is any difference between the profit before bax and Se | taxable 1nCON6, WE 6 5 Later in the meeting the CEO asks more questions. Match them to the accountant's answers (ag) 1 None Will this also be checked? Could you just go over it again? How is the profit calculated? How much is your fee? How often do they check? Who'll handle the presentation? How about if we send it in next week? a b c 600 euro per hour. 'm afraid that will be too late. Every three months. It’s basically income minus expenses. Yes, of course. Let me try to explain it differently this time. It should be. Pll ask Jurgen to make sure it’s done Susanne.UNITS Taxaccountng | 2 6 _Usethe words from the box to complete the following conversation. depends * so » clarify * mean * basically * exactly Kathy Hi javier. How's it going? Javier It's not easy, allthis English. We didn’t do any of this on my course. Kathy Can help? Javier Well, maybe you could a couple of things. Let's see. Ah, here we are. Provision for income taxes. What does that 7 Kathy OK. Provision means putting money aside so that we have something to pay with later. So provision for income taxes is talking about the current year’s tax expense which will have to be paid in the future. Javier Like provisional? Kathy Not >, Provisional just means temporary, you know, not final. Like a provisional budget. it’s not the final version. Javier | see, And what about deferred income tax balances. What does deferred mean? Kathy 4 put off to another day. The income has been recognized in the accounts, but the tax owing on that income will only be realized in the future. Javier OK. How does that affect associated companies? Kathy Well, it 5. Associated companies and affiliates are a special case. Deferred taxes are not normally recognized on undistributed earnings, but only if the plan is to re-invest the profits. Javier Sif we don't invest the profits, we pay tax. Kathy Exactly. ‘Now listen and check your answers. Then explain -in your own words - what provision for income tox and deferred income tax balances mean. 7 Now work with a partner to practise explaining and clarifying information. Each of you should ‘explain a standard procedure from your workplace, and the other asks questions about it. Then ‘swap partners and explain the procedure you have just heard to another person. In my office the procedure for claiming travel expenses is The way private people pay income taxin my country is normally to ... ID You KNow? Clarifying information ‘Maybe you could clarify a couple of things. ~ Sure, / Certainly, What do these figures mean again? ~ Basically, they just mean that. Can we just go aver that one more time? = Of course. / No problem, Could you repeat that, please? ~ Sure, I said .. So, what you'e saying is that the profits are too low. = That's right. / Exactly, So, this column is wrong? ~Well, not exactly. /it depends. In other words, we'll need to send it by Friday? ~ Baactly, When did you say we'd be starting the audit? On%6 | UNITS Taxaccounting & Match these expressions with tox to their defi 1 tax avoidance @ someone who lives in another country for tax reasons 2. tax bracket b_ to introduce a new tax on something 3. tax evasion to make the tax go up 4 tax exempt d_ when you don’t have to pay tax on certain income 5 tax exile e to cancel a tax 6 to abolish tax F tells you what amount of tax to pay based on income 7 to impose tax trying not to pay tax (legal) 8 to increase tax h trying not to pay tax (illegal) Use words from the box to fill in the gaps. abolish * bracket © breaks * exempt * exile © increase * property * return 1 The government needs more money, so it is planning to __ taxes. 2. He earns a lot of money ~ he must be in the highest tax 3. She lives there because she has to ~ she's a tax 4 They are planning to the tax on large company cars, and replace it with a tax on all company cars. 5. She is a student, so she is tax 6 The government is planning to introduce new tax for IT companies. Don’t buy a house this year ~ the taxes are being abolished next March, 8 Atax is the same as a tax declaration — it’s a list of income and tax deductible expenditure for the tax authority. 10 Anaccountant froma Swiss parent company, Uta Meier, telephones the Internal Revenue Service 5 (IRS) in the U.S. to discuss the treatment of certain costs. Listen to the conversation. What is the result of the discussion? Fillin the gaps in the extract from the discussion. Uta We're rm IRS Look. 'm sorry ee 2. | suggest 4 to our office. We can then consider your arguments in detail.11 12 13 UNITS Taxaccounting | 21 Uta Fine. rll neal 5, Thanks Now listen again and check your answers. Find words from the conversation which mean the following: 1 to improve a machine or equipment written suggestion an opinion of what something means rules to include as an asset an explanation of what something means USEFUL PHRASES. Polite language Uta and the IRS agent didn't agree but they kept their conversation polite by using certain phrases and ‘expressions to soften their statements. Most English speakers expect this type of ‘polite’ language and think people who dor’t use it are too direct and even impolite. Here are some typical phrases you can use to ‘soften’ what you say Excuse me, but. Atfirst glance, itappears clear... Vm sorry but. This seems to be... Pm afraid that’s not quite right. Could you please. We havea slight problem. Use phrases from the box to ‘soften’ the following statements, heat dome wtiveu 3 Idisagree. You're wrong. comments. They don’t To make sense. is Your calculations are Your idea is 5 * nosh) fulofmetates. 2 This conversation is going nowhere. Call me} 6 You don't have the back ater. necessary experience to | do this job. } The new head of your finance department wants to know about the taxation system in your country. He has also heard that the taxation system is closely connected with the financial reporting requirements. Write a report to him explaining the major points and referringto the relevant laws.14 Use the clues to complete 28 | UNITS Taxaccounting the crossword. Across: 1 suggestion, often in writing 5 plan othow much you are {going to spend 8 not permanent 114 the worth of an item which has finished its useful ife (2words~5,5) 12 opposite of oss 13 money you get for doing something Down: 2 youmight get this when someone dies 3 to take away; opposite of dt 4 wealth 6 excused from paying taxes: tax... 7 delayed 9 you pay this when you borrow money 10 putting money aside ‘mate pin The governments of some countries use the taxation system to promote investment. Taxation laws are enacted to encourage domestic and intemational tax breaks are given to specific industries or to certain types of expenses to attract investors and ‘consumers. As a result of these taxation measures, there is significant scope for taxation planning in some countries and companies would be well advised to use such opportunities to structure thelr business in the most tax effective manner. For effective taxation planning, companies rely on tax specialists who must have an excellent under- standing of both their clients’ business and the various taxation laws. Companies turn to their tax advisers for help on all the taxes for which they are liable, such as income tax, sales tax, property tax and payroll tax. These tax specialists are normally Chartered Accountants and CPAs who are not only involved in the preparation of tax returns (compliance), but who also give advice on a multi= national company’s domestic and foreign oper- ations. (consulting). Furthermore, they represent their clients before the tax authorities. Can you think of any tax breaks which the government in your country has introduced recently? Where can a potential investor go for advice? What tax advice would you give to an individual who comes to live and work in your country?