TaxationWeb by Malcolm Finney
Malcolm Finney points out that tax law is complex, and that mistakes are possible even by examiners in tax exams.No-one is perfect and mistakes in life are inevitable.Tax law changes on an ever frequent basis whether as a consequence of court decisions and/or changes in legislation and/or practice. Keeping up to date is by no means an easy task even for the most seasoned practitioner/academic.
However, there can be no excuses for the glaring mistake made in ACCA’s Question 5 of Paper 2.3 (Business Taxation) in the December 2005 examination.
Music Plc
80% 100% 100% 45% 100%
Alto Ltd Bass Ltd Cello Ltd Drum Ltd Echo Inc
75%
Flute Ltd
80%
Gong Ltd
Unfortunately Music Plc in fact has 6 not 5 associated companies (see below). The examiner who set the question and all the persons responsible for checking that the question was correct all abysmally failed to spot this glaring error; an error expected of a student but not of an experienced tax lecturer/practitioner/reviewer.
Interestingly in the January issue of PQ magazine on page 27 under the banner “Running the rule over December’s diet: So what did our experts think of the latest exams?” in connection with Paper 2.3 absolutely no mention of the error was made. Why? Did the contributors to the piece actually read the Paper? Perhaps students at the relevant institutions are being taught incorrectly?
The term “associated company” is defined in section 13 ICTA 1988; “control” is in turn defined in section 416 ICTA 1988.
Accordingly, Music controls all the companies except for Drum and thus has 6 not 5 associated companies.
What went wrong?
The mistake which seems to have been made (and I can only guess) is that in determining whether a company is associated with another company the examiner has assumed that Music does not control Gong (or of course Drum) as the share ownership of Music in Gong is 80% x 75% x 80% ie 48% which is less than 50%; however, this is not the correct interpretation of “control” for this purpose.Whether or not this is in fact the reason for the error is irrelevant. The error, quite simply, should not have been made.
The blame falls fairly and squarely on the ACCA.
What happens next?
The key issue must be to decide how are students who took the examination to be recompensed? How are the ACCA going to put students in the position they would have been had the mistake not been made?In short, of course, they can’t.
But something has nevertheless to be done about adjusting marks to reflect the error. This should not be done in secret. Some public statement needs to be made by the ACCA.
But what about the longer term?
As stated in the opening few sentences above no one (least of all myself) is infallible; mistakes, even with the best of intentions, are made. What is clear is that the process for checking exam papers needs to be reviewed and if appropriate tightened and/or amended.
January 2006
Malcolm Finney is an international tax consultant and is currently a visiting lecturer at the University of Greenwich.
The above article was first published in ‘Pass’ magazine (February 2006)
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