Addis Ababa University

College of Business and Economics

Department of Accounting and Finance
MSc in Accounting and Finance

Advanced Taxation
Assignment #2

Prepared by
Yaregal Birhanu GSE/9996/15
Section 2 Submitted to: Alem H. (PhD)
AAU, CoBE
Dec 15- 2023
1. Techniques that could be used to achieve these tax avoidance strategies by MNCs
 Transfer Pricing Manipulation: MNCs can manipulate transfer prices on transactions
between their affiliated entities in different jurisdictions. By artificially inflating or deflating
the prices of goods, services, or intellectual property transferred between subsidiaries, they
can shift profits to low-tax jurisdictions and increase expenses in high-tax jurisdictions.
 Profit Shifting through Intangible Assets: MNCs often own valuable intangible assets such as
patents, trademarks, and copyrights. They can strategically transfer these assets to
subsidiaries located in low-tax jurisdictions. By attributing a significant portion of profits to
these entities, they can reduce their overall tax burden.
 Debt Financing and Interest Deductions: MNCs may use debt financing to fund subsidiaries
in high-tax jurisdictions. By doing so, they can generate interest deductions that reduce
taxable income in those jurisdictions. This allows them to shift profits to low-tax
jurisdictions where interest income is often taxed at a lower rate.
 Tax Havens and Shell Companies: Establishing subsidiaries or shell companies in tax havens
or jurisdictions with favorable tax regimes is a common strategy. MNCs may channel profits
through these entities, taking advantage of low or zero corporate tax rates. Additionally, the
use of complex corporate structures and legal arrangements can make it challenging for tax
authorities to trace the actual ownership and financial flows.
2. A significant increase in dividend tax rates from 10% to 30% for individuals can have several
implications for a CEO's decision-making regarding dividend payouts. Here are some
considerations:
 Impact on Shareholder Returns: Higher dividend tax rates mean that shareholders will
receive a lower after-tax return on their investments. This may reduce the attractiveness of
the company's stock for income-seeking investors who rely on dividends for income.
 Investor Sentiment and Stock Price: Shareholders often react to changes in dividend
policies. If a company reduces or eliminates dividends due to higher tax rates, it could lead
to negative investor sentiment. This, in turn, might put downward pressure on the
company's stock price.
 Alternatives to Dividend Payouts: In response to higher dividend tax rates, CEOs may
arrange share buybacks or reinvesting profits into the company for growth opportunities.
 Capital Allocation and Investment Decisions: pay or retain
 Shareholder Communication: to manage investor expectations and mitigate potential
negative reactions.
3. The imposition of excise tax on goods, whether imported or produced locally in Ethiopia, serves
several purposes:
 Revenue Generation: Excise taxes contribute significantly to government revenue. By taxing
specific goods that are considered non-essential, harmful, or luxury items, the government
can generate funds for public services and infrastructure development.
 Control and Regulation: Excise taxes are often used as a regulatory tool to discourage the
consumption of certain goods that may have negative social or health impacts. Examples
include taxes on tobacco, alcohol, and sugary beverages. By increasing the cost of these
items, the government aims to reduce their consumption.
 Social and Economic Policy Objectives: Excise taxes can be designed to align with broader
social and economic policy goals. For instance, the government may use excise taxes to
promote environmental sustainability, public health, or to address income inequality.
 Specific Goods and Industries: Excise taxes are typically applied to specific goods or
industries, allowing for a targeted approach. This is in contrast to more broad-based taxes
like VAT (Value Added Tax) that apply to a wide range of goods and services.
While excise tax is specific to certain goods and serves multiple purposes including revenue
generation and regulation, VAT is a broad-based consumption tax applied at various stages of
production and distribution. TOT, on the other hand, is a tax on the total turnover of a business,
often implemented for simplicity, especially for smaller enterprises.
4. Price Elasticity of Demand:
Tobacco products are often considered price-sensitive goods, meaning that changes in their price
can significantly impact consumer behavior. When taxes on cigarettes are increased, the price of
these products rises, leading to a decrease in demand. This is particularly true for vulnerable
populations, such as youth and low-income individuals, who may be more responsive to price
increases.
While taxation is a powerful tool, it is often most effective when part of a comprehensive tobacco
control strategy that includes public awareness campaigns, smoking cessation support, and
restrictions on advertising and public smoking.
5. Valuation of Goods: refers to the determination of the customs value of imported or exported
goods. The customs value is the basis for calculating the duties and taxes payable on the goods. The
customs value includes the cost of the goods, shipping and freight charges, insurance, and any other
costs necessary for the delivery of the goods to the buyer.
Tariff Classification: involves assigning a specific code to a product based on an internationally
recognized classification system. The Harmonized System (HS) is the most widely used
classification system, and it is used by most countries for customs and international trade purposes.
Calculation of Duties: The duty rates applied to imported or exported goods depend on factors
such as the classification of the goods, the country of origin, and any preferential trade agreements
in place. Duty rates can be ad valorem (percentage of the customs value), specific (fixed amount per
unit), or a combination of both.
6. Peculiar Features of Stamp Duty in Ethiopia:

Document-Based Tax: Stamp duty is typically a tax levied on certain documents to make them
legally effective. It is not a transaction-based tax but is applied to specific types of documents.

Fixed or Ad Valorem Rates: Stamp duty may be charged at fixed rates or as a percentage of the
transaction value, depending on the type of document. For example, property-related documents
may have ad valorem stamp duty rates.

Legal Recognition: Stamping documents is often a legal requirement for their recognition and
enforceability. Documents that are not properly stamped may not be admissible in court as
evidence.

Regulatory Framework: Stamp duty regulations are governed by specific laws and regulations. In
Ethiopia, the stamp duty provisions may be outlined in legislation or administrative directives.

Instances of Exemption to Documents in Stamp Duty in Ethiopia

Exemptions to stamp duty may vary based on the type of document and the specific circumstances.
Common instances where exemptions might apply include:

Certain Types of Documents: Some categories of documents may be exempt from stamp duty. For
instance, certain legal instruments, educational certificates, or documents related to charitable
activities may be exempt.

Government Transactions: Documents related to transactions involving the government or public

entities may be exempt from stamp duty.

Certain Parties or Organizations: Documents executed between certain parties or organizations,

such as governmental bodies, non-profit organizations, or diplomatic missions, may be eligible for
exemption.
Certain Types of Transactions: Stamp duty exemptions may apply to specific types of transactions,
especially those deemed to be in the public interest or for specific policy reasons.

Statutory Exemptions: Some exemptions may be explicitly provided for in the stamp duty laws or
related legislation.

7. Article 95 specifically addresses the revenue-sharing arrangements between the federal and
state governments. It stipulates that the federal and regional governments shall, through
consultation and agreement, determine the division of revenues derived from federal taxes, as well
as grants and loans.
The provision emphasizes the importance of consultation and agreement between the federal and
regional governments in determining the distribution of revenues. This collaborative approach
reflects the cooperative nature of the federal system in Ethiopia.
The revenue-sharing arrangement is designed to ensure that both the federal government and the
regional states have the financial resources necessary to fulfill their respective functions and
responsibilities.

8. Here are some reasons why businesses are subject to taxation:

 Legal Entities with Separate Existence:
Business entities, such as corporations and limited liability companies, are considered legal entities
with a separate existence from their owners. They can own property, enter into contracts, and incur
liabilities independently. Taxing these entities allows governments to collect revenue based on the
economic activities conducted by the business.
 Encouraging Compliance and Accountability:
Holding businesses accountable through taxation fosters compliance with legal and regulatory
frameworks. It ensures that businesses contribute their fair share to society and discourages illicit
financial activities, such as tax evasion and fraud.
 Simplifying Individual Taxation:
Taxing businesses as separate entities simplifies the taxation process for individuals. It allows for
the aggregation of business income and expenses at the entity level, making it easier to administer
and ensuring that businesses contribute to public finances.