Komandor Sa

In: Business and Management

Submitted By nicolasverdon
Words 650
Pages 3
Comparison of the different alternatives:
1. Capitalize the consulting fees:
In this case, the Profit Before Tax (PBT) would have been higher by $200,000. Therefore, they would have paid 28% x $200,000 = $56,000 in taxes. The Net Income (NI) would have been increased by $144,000.
2. Allocate the consulting fees to the plastic products:
Before allocating the fees, Komandor was buying 500,000 units at $0.45$/unit  duty fees = 500,000 x $0.45 x 0.09 = $20,250
If Komandor allocates the consulting fees to the plastic products, we have to find the new price P ($/unit) of the product such as 500,000 x $0.45 + $200,000 = 500,000 x P  P = $0.85/unit
So, the duty fees become = 500,000 x $0.85 x 0.09 = $38,250
Therefore, the increase in cash outflow in duty fees is $18,000. NI is lower by $18,000 x (1-28%) = $12,960.
3. Allocate the consulting fees to the metal products:
Before allocating the fees, Komandor was buying 500,000 units at $2.25$/unit  duty fees = 500,000 x $2.25 x 0.16 = $180,000
If Komandor allocates the consulting fees to the plastic products, we have to find the new price P ($/unit) of the product such as 500,000 x $2.25 + $200,000 = 500,000 x P  P = $2.65/unit
So, the duty fees become = 500,000 x $2.65 x 0.16 = $212,000
Therefore, the increase in cash outflow in duty fees is $32,000. NI is lower by $32,000 x (1-28%) = $23,040.
4. Hire a tax official as a “consultant”
The bonus the tax official could receive is 10% of the reclaimed additional tax revenue, i.e. $200,000 x 28% x 10% = $5,600. So Komandor S.A. should give (at least) $5,600 to hire him as a “consultant”. We assume that this bribe is not tax deductible, so the NI is lower by $5,600.
5. Don’t invoice Poland for the consulting fees
PBT for Komandor S.A. would be higher by $200,000, and they would pay $200,000 x 28% = $56,000. PBT for Euro connection would be lower by $200,000, and…...

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