I’m unsure about the part (b) of this question. Why is the taxation “benefit” subtracted at 20%? The question says this is only charged on profits? or is it meant to be similar to VAT?
No, it’s like corporation tax, so chargeable on profits:
“All profits in Distantland are subject to taxation at a rate of 20%.”
However, we don’t know the revenue – but that will be constant no matter where the supports are sourced from. Therefore, as revenue will make no difference to the decision, we can concentrate on the costs, less tax.
Is there a reason why haven’t they included the tax @ 20% when they calculated the revenue from selling it externally by Division A? Is it because it will be taxed twice? They are only calculating it for purchases by Division B which is why I was confused what it meant.
Division A is taxed at 40% as that is the tax rate in Division A’s country. I can’t see that the 20% rate has anything to do with division A, no matter to where it sells the goods.
Ah sorry just seen that its only applicable for Distantland and Division A doesnt operate there. Really need to read the questions more carefully!
Thanks for your help!
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