Skane Shipping Ltd. (SSL) operates a fleet of container ships ininternational trade between Sweden and Singapore. All of theshipping income (that is, that related to SSL’s ships) is deemed tobe earned in Sweden. SSL also owns a dock facility in Singaporethat services SSL’s fleet. Income from the dock facility is deemedto be earned in Singapore. SSL’s income deemed attributable toSweden is taxed at a 65 percent rate. Its income attributable toSingapore is taxed at a 20 percent rate. Last year, the dockfacility had operating revenues of $14 million, excluding servicesperformed for SSL’s ships. SSL’s shipping revenues for last yearwere $80 million.
Operating costs of the dock facility totaled $15 million lastyear and operating costs for the shipping operation, beforededuction of dock facility costs, totaled $51 million. No similardock facilities in Singapore are available to SSL.
However, a facility in Malaysia would have charged SSL anestimated $9 million for the services that SSL’s Singapore dockprovided to its ships. SSL management noted that had the servicesbeen provided in Sweden, the costs for the year would have totaled$23 million. SSL argued to the Swedish tax officials that theappropriate transfer price is the price that would have beencharged in Sweden. Swedish tax officials determined that theMalaysian price is the appropriate one.
Required:
1. Calculate the revenues, costs, income taxesand total taxes for both SSL and the Dock Facility using theMalaysian basis. (Do not round intermediatecalculations. Enter your answers in millionsrounded to 2 decimal places.)
2. Calculate the revenues, costs, income taxesand total taxes for both SSL and the Dock Facility using theSwedish basis. (Do not round intermediatecalculations. Enter your answers in millionsrounded to 2 decimal places.)
3. What is the difference in tax costs to SSLbetween the alternate transfer prices for dock services, that is,its price in Sweden versus that in Malaysia? (Do not roundintermediate calculations.Enter your answer inmillions rounded to 2 decimal places.)
