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

Using the data in Extracts E and F, calculate the amount Pfizer would save on its Corporation Tax in Ireland, rather than the USA. You are advised to show your worki... show full transcript

Worked Solution & Example Answer:Using the data in Extracts E and F, calculate the amount Pfizer would save on its 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

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Answer

To calculate the Corporation Tax in the USA for 2014, we use:

ext{Tax in USA} = 9.135 ext{bn} imes 0.40 = 3.654 ext{bn}

For Ireland in 2014:

ext{Tax in Ireland} = 9.135 ext{bn} imes 0.125 = 1.141875 ext{bn}

Thus, the total amount saved by operating in Ireland instead of the USA would be:

3.654 ext{bn} - 1.141875 ext{bn} = 2.512125 ext{bn}

Step 2

Alternative calculation method

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Answer

Another method is to find the tax after applying the tax rate:

First, calculate the amount after USA tax:

ext{After Tax in USA} = 9.135 ext{bn} imes (1 - 0.40) = 5.481 ext{bn}

Then, if Pfizer had been based in Ireland:

ext{After Tax in Ireland} = 9.135 ext{bn} imes (1 - 0.125) = 8.034375 ext{bn}

Thus, the savings would also be:

8.034375 ext{bn} - 5.481 ext{bn} = 2.553375 ext{bn}

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