Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent company, Torrington Edge (Great Britain). Hong Kong tax rates are 12% and British tax rates are 40%. Chinglish calculates its profit per container as follows (all values in British pounds). Corporate management of Torrington Edge is considering repositioning profits within the multinational company. What happens to the profits of Chinglish Dirk and Torrington Edge, and the consolidated results of both if the markup at Chinglish was increased to 30% and the markup at Torrington was reduced to 10%? What is the impact of this repositioning on consolidated tax payments?

Assumptions		Hong Kong		Great Britain
Corporate income tax rate		12.0%		40.0%
Desired markup on transfers		20.0%		20.0%
Volume		1,000
Constructing Transfer (Sales)		Chinglish Dirk		Torrington Edge		Consolidated
Price Per Unit		(British pounds)		(British pounds)		(British pounds)
Direct costs		10,000		16,800
Overhead		4,000		1,000
Total costs		14,000		17,800
Desired markup		2,800		3,560
Transfer price (sales price)		16,800		21,360
Income Statement (prices x volume)
Sales price		16,800,000		21,360,000
Less total costs		(14,000,000)		(17,800,000)
Taxable income		2,800,000		3,560,000
Less taxes		(336,000)		(1,424,000)		1,760,000
Profit, after-tax		2,464,000		2,136,000		4,600,000