- This topic has 3 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
Dear John,
I am slightly confused with the Corporation tax treatment amongst these the three papers mentioned above.
Where Tippletine’s tax is concerned, the question says ” .. Tax is payable with a year’s time delay. Any tax losses on the investment can be assumed to be carried forward and written off against future profits from the investment.”
However, for Zhichi, the wording goes “Tax is payable with a year’s time delay and any tax losses from the project are set against the company’s profits from other projects”
And, for Okan, it says “Tax is payable in the same year as the profits it is based on. Okan co makes sufficient profits from its other activiities to take advantage of any tax loss relief.”
Please would you be able to tell me how to decide when to use the correct tax treament?
Kind regards,
Ranjana Rai.When a company is investing in a project in its home country, then we usually assume (and was always the case in Paper FM) that the company is already making profits and is therefore already paying tax. As a result, if the new project reports a ‘loss’ in a particular year then it is actually simply reducing the existing total profits of the company, which means that the ‘loss’ results in a tax saving (i.e. an inflow). That is what the wording in Zichi and Okan is meaning to assume.
If however the investment is in another country (as is so often the case in AFM), then the ‘loss’ from the investment cannot be used to reduce the taxable profits in the home country, and therefore any loss will be carried forward and reduce the taxable profits from the investment in the foreign country in later years. That is what the wording in Tippletine is saying.
As far as whether tax is payable immediately or with a one year delay, that is just as in Paper FM and simply affects the timing of the tax flows.
I do explain all of this this in my free lectures on investment appraisal.
- The topic ‘Taxable Loss treatment Tippletine Co (MJ18) Vs Zhichi Co (SD21) Vs Okan SD19’ is closed to new replies.