Using the data in Extracts E and F, calculate the amount Pfizer would save on corporation tax in Ireland, rather than the USA - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1

The tax amount in the USA can be calculated using the corporation tax rate:

$\text{Tax in USA} = 9.135\text{bn} \times 0.4 = 3.654\text{bn}$

For Ireland, the corporation tax rate was 12.5% in 2014. Similarly, we can find the profit before tax for Ireland:

$\text{Profit before tax (Ireland)} = \frac{9.135\text{bn}}{1 - 0.125} = \frac{9.135\text{bn}}{0.875} = 10.432\text{bn}$

Now we can calculate the corporation tax in Ireland:

$\text{Tax in Ireland} = 10.432\text{bn} \times 0.125 = 1.304\text{bn}$

To find the total amount Pfizer would save in tax by operating in Ireland instead of the USA, we subtract the tax in Ireland from the tax in the USA:

$\text{Tax savings} = 3.654\text{bn} - 1.304\text{bn} = 2.350\text{bn}$

Therefore, Pfizer would save $2.350 billion by relocating to Ireland.