Worldwide Merchants Co-op (WMC) operates a fleet of container ships in international trade between | tarnational Transfer Prices Great Britain and Thailand. All of the shipping income (that is, that related to WMC’s ships) is deemed (LO 1,4)

as earned in Great Britain. WMC also owns a dock facility in Thailand that services WMC’s fleet.

Income from the dock facility is deemed earned in Thailand, however. WMC’s income attributable to Great Britain is taxed at a 75 percent rate. Its income attributable to Thailand is taxed at a 20 percent rate. Last year, the dock facility had operating revenues of $4 million, excluding services performed for WMC’s ships. WMC’s shipping revenues for last year were $26 million.

Costs to operate the dock facility were $5 million last year; costs to operate the shipping operation, before deduction of dock facility costs, were $17 million. No similar dock facilities in Thailand are available to WMC.

However, a facility in Malaysia would have charged WMC an estimated $3 million for the services that WMC’s Thailand dock provided its ships. WMC management noted that if the services had been provided in Great Britain, the costs for the year would have totaled $8 million. WMC argued to the British tax officials that the appropriate transfer price is the price that would have been charged in Great Britain. British tax officials suggest that the Malaysian price is the appropriate one.

Required What is the difference in tax costs to WMC for the alternate transfer prices for dock services, that is, its price in Great Britain versus that in Malaysia?