A company operates in two countries, Country A and Country B, and has the following income and expenses in each country:

Country A:

• Income of $10 million and expenses of $7 million
• Tax rate of 25%

Country B:

• Income of $5 million and expenses of $3 million
• Tax rate of 20%

In addition, the company has $2 million in interest income and $1 million in interest expense in the current year.

a) Calculate the company's taxable income and income tax liability in each country.

b) Determine the company's overall income tax liability if it allocates its interest income and expense in the most tax-efficient manner. Show your calculations and explain your reasoning.

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