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Sir ,
Why is the tax rate at 40%? Shouldn’t it be 20%?My understanding of bilateral tax treaty is that if you pay tax in country A, then you don’t pay tax in country B, therefore you avoid paying taxes twice. Shouldn’t the Npv calculation just charge 20% tax rate in years 3 and 4?
Thank you
The tax rate in Yilandwe is 40% and therefore they have to pay tax at that rate in Yilandwe,
The cash flows are then remitted to the US. If the US tax rate were higher than 40% then they would just pay the extra in the US. However since the US tax rate is only 20% there is no extra tax payable. In the US they only have to pay tax on the US earnings (the parts sales and royalty).
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