Murni Corporation (MC) operates a fleet of container ships in international trade between USA and Singapore. All of the shipping income that is related to MC's ships is deemed as earned in Great Britain. MC also owns a dock facility in Singapore that services MC's fleet. However, income from the dock facility is deemed earned in Singapore. MC's income attributable to Great Britain is taxed at a 75% rate. Its income attributable to Singapore is taxed at a 20% rate. Last year, the dock facilities had operating revenues of USD$6 million, excluding services performed for MC's ships. MC's shipping revenues for last year were USD$ 39 million. Cost to operate the dock facility were USD$7.5 million last year. Costs to operate the shipping Operation before deduction of dock facility costs were USD$25.5 million. No similar dock facilities in Singapore are available to MC. However, a facility in Malaysia would have charged MC an estimated USD$4.5 million for the services that MC's Singapore dock provided its ships. MC management noted that if the services had been provided in Great Britain, the cost for the year would have totaled USD$12 million. MC 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: a) Compute the total tax costs if the transfer price is Malaysian basis. (7 marks) (CLO3:PL06:C3) b) Compute the difference in tax costs to MC dock services for the transfer price in Great Britain compared transfer price in Malaysia. (8 marks) (CLO3:PL06:03) c) Discuss the implication of different tax rate imposed at Singapore and UK towards MC. (4 marks) (CLO3:PL06:C4) d) Explain the difficulties in implementing General Rules Transfer Price'. (6 marks) (CLO3:PLO6:02) Murni Corporation (MC) operates a fleet of container ships in international trade between USA and Singapore. All of the shipping income that is related to MC's ships is deemed as earned in Great Britain. MC also owns a dock facility in Singapore that services MC's fleet. However, income from the dock facility is deemed earned in Singapore. MC's income attributable to Great Britain is taxed at a 75% rate. Its income attributable to Singapore is taxed at a 20% rate. Last year, the dock facilities had operating revenues of USD$6 million, excluding services performed for MC's ships. MC's shipping revenues for last year were USD$ 39 million. Cost to operate the dock facility were USD$7.5 million last year. Costs to operate the shipping Operation before deduction of dock facility costs were USD$25.5 million. No similar dock facilities in Singapore are available to MC. However, a facility in Malaysia would have charged MC an estimated USD$4.5 million for the services that MC's Singapore dock provided its ships. MC management noted that if the services had been provided in Great Britain, the cost for the year would have totaled USD$12 million. MC 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: a) Compute the total tax costs if the transfer price is Malaysian basis. (7 marks) (CLO3:PL06:C3) b) Compute the difference in tax costs to MC dock services for the transfer price in Great Britain compared transfer price in Malaysia. (8 marks) (CLO3:PL06:03) c) Discuss the implication of different tax rate imposed at Singapore and UK towards MC. (4 marks) (CLO3:PL06:C4) d) Explain the difficulties in implementing General Rules Transfer Price'. (6 marks) (CLO3:PLO6:02)
