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Hello sir
Q;There is tax shield on interest payment.But if company no pay interest at all or lower then the market then how he save tax on intrest which is not paid at all..Question from jun 02 STRAYER INC..THere is subsidized from government which allow company to pay lower tax then market…
Hence company save tax on intrest paid to government BUT BUT company also save tax on 2% intrest which is not paid to government..
Well how is it possible…
All interest is tax allowable and therefore saves tax – it doesn’t matter who it is paid to.
With regard to the subsidy, they do save 2% interest, but because they are not paying that 2% they don’t get a tax saving on it. Therefore the benefit of the subsidy is after tax at 30%.
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