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FGL Group Ltd is involved in fish processing and supply in various countries. Currently, the group has subsidiaries in Madagascar, Mauritius and Reunion Islands. The

FGL Group Ltd is involved in fish processing and supply in various countries. Currently, the group has subsidiaries in Madagascar, Mauritius and Reunion Islands. The fish are cached in the Indian Ocean, that is mainly in these three countries territory and in accordance with the mutual agreement between these countries, the company can process the fish in any of these countries but will have to supply at least 50% of the processed fish to these three Islands for their consumption. The company is expected to produce 1,200,000 processed fish cans per year.
Production and exportation cost will be as listed below: Madagascar
Fishing cost is USD 5 per unit produced
Labour cost is USD 7 per unit produced
Exportation cost USD is 25,000 per 1,000 units
Local authority cost USD is 5,000 per year
Management service fees are USD 50,000 per year
Royalties payable to MTG is 2% of revenue
Mauritius
Fishing cost USD 5 is per unit produced
Labour cost USD is 10 per unit produced
Exportation cost is USD 20,000 per 1,000 units
Local authority cost is USD 7,000 per year
Management service fees are USD 50,000 per year
Royalties payable to MTG is 2% of revenue
Reunion
Fishing cost is USD 5 per unit produced
Labour cost is USD 15 per unit produced
Exportation cost is USD 10,000 per 1,000 units
Local authority cost USD is 15,000 per year
Management service fees are USD 50,000 per year
Royalties payable to MTG is 2% of revenue
The tax law in these countries is as follows:
Madagascar tax rates:
Corporate tax: 30%
Withholding tax on dividend: 15%
The capital gain tax: 15%
Royalties withholding tax: 20%
Management service tax: 5%
Mauritius tax rates:
Corporate tax: 15%
Withholding tax: 10%
The capital gain tax: 5%
Royalties withholding tax: 5%
Management service tax: 0%
French tax rates:
Corporate tax: 40%
Withholding tax: 10%
The capital gain tax: 5%
Royalties withholding tax: 7%
Management service tax: 5%
The selling price of the processed fish cans is USD 50 per unit in each of the three countries. However, the price is higher for those sold outside these three islands.
REQUIRED
a) To recommend, based on the information provided above, whether the company should set up only one processing unit or one unit in each country.
(30 Marks)
b) Explain the circumstances when the company could have charged different prices to each of the three countries.
(10 Marks)
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