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Using the data in Extracts E and F, calculate the amount Pfizer would save based on the corporation tax in Ireland, rather than the USA - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Using the data in Extracts E and F, calculate the amount Pfizer would save based on the corporation tax in Ireland, rather than the USA. You are advised to show your... show full transcript
Worked Solution & Example Answer:Using the data in Extracts E and F, calculate the amount Pfizer would save based on the corporation tax in Ireland, rather than the USA - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Assume $9.135bn is Before Tax
Answer
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Identify Corporation Tax Rates:
- USA tax rate in 2014 = 40%
- Ireland tax rate in 2014 = 12.5%
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Calculate Tax in USA:
- Tax = 3.654bn
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Calculate Profit After Tax in USA:
- Profit After Tax = 3.654bn = $5.481bn
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Calculate Tax in Ireland on the same profit:
- Ireland Tax = 1.141875bn
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Calculate Profit After Tax in Ireland:
- Profit After Tax = 1.141875bn = $7.993125bn
-
Calculate Savings in Tax:
- Savings = Tax in USA - Tax in Ireland = 1.141875bn = $2.512125bn.
Step 2
Assume $9.135bn is After Tax
Answer
-
Identify After Tax Profit and Rates:
- If $9.135bn is after tax.
-
Calculate Required Figures:
- USA Tax Rate Needs to be Added Back = 15.225bn
- Consequently, Tax Paid in USA = 9.135bn = $6.090bn.
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Calculate Equivalent for Ireland:
- For $9.135bn at Ireland's rate:
- After Tax in Ireland = 10.44bn.
- Thus, Tax Paid in Ireland = 9.135bn = $1.305bn.
-
Calculate Savings:
- Savings = 1.305bn = $4.785bn.