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Dear Sir,
I get problem to understand some points of the answer as follow:
– Why tax rate used in calculating Tax shield and subsidy benefit (working 8) is 20% instead 30%, the final rate of cash flow (additional tax of 10% in working 7)?
– Additional tax of 10% which imposed in USA should have calculated based on remittance amount and time instead of time and amoun of taxable profit in Gamala as now?
– Is it assumed that we can always exploit full benefit of tax shield because in year 1 & 2 we lost but full tax shield benefit calculated in APV?
Please help.
Thank you very much.
NHO– the 20% is because the money is borrowed in Gamala and the tax rate in Gamala is 20%
– the tax in the USA will be based on the earnings in Gamala (not the remittances) but they will get relief for the Gamelan tax. So an extra 10% on the earnings.
– it is assumed that they will get the tax relief at some stage through loss relief (although obviously this could affect the timing, which would be a nice point to make if it occurred to you in the exam)
Dear Sir,
Please endure me a little.
I contend that the tax rate used in calculating effect of Tax shield and subsidy benefit is 30%.
In Gamala, all taxable profit was imposed 20%.
And in USA, we added an extra tax rate of 10% on this earnings.
It means that the final tax rate which was applied for taxable profit is 30%.
So interest was allowable for tax with the final rate of 30%, wasn’t it?
Thank you.
I take your point, and I suppose it depends on the rules of the double tax treaty.
However, given it is the examiners answer it is best to assume that the tax benefit on the debt is only at the Gamelan tax rate.
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