Corporation tax

In addition to royalty, one or more taxes may be levied (such as corporation tax and/or a special petroleum tax). 

With a cost of capital of 10 percent the various cash flows can be discounted and summed. Thus for the base cases Z Af = 2,815,600, Z Ajp/d = 754,716, Z Aofd = 614,457, and Z C c/d = 61,446. With corporate taxes payable at 50 percent the aftertax cash flows of the first three items are (1 — 0.50) of the sums calculated above. The discounted working capital and the fixed-capital outlay are not subject to tax. These most probable values are listed and summed in Table 9-11 and, after adjustment for tax, give the modal value of the (NPV) as 276,224. 

Bills are due on monthly account with a 2 percent discount for cash. Overdraft and deferred-tax interest are compounded daily at nominal annual interest rates of 15 and 9 percent respectively. Corporation tax, capital gains tax, and personal income tax rates are 50, 40, and 30 percent respectively. The current rate of inflation is at 8 percent per year. The traditional return expected hy investors is 7 percent per year net of all taxes in real terms. 

The interest rate due on deferred tax is also net of corporation tax at 9.42 percent. The interest payable on overdrafts is an expense fully allowable against tax, so that the effective aftertax rate is reduced to (16.18)(1 — 0.50) = 8.09 percent. Similarly, as the advantage forgone on the discounts would tend to increase company profits and hence tax due, the effective aftertax gain is reduced to (24)(1 — 0.50) = 12.00 percent. 

In this example. Advance Corporation Tax has been calculated at 25 75. 

Step 3 Deduct tax allowances. Typically for limited liability companies in the UK these comprise initial grants for certain projects in development areas plus first year allowances, adjusted for corporation tax. 

B. Financial engineering B-1. Optimizing the capital structure B-2. Reducing corporate tax Optimizing capital structure and minimizing after-tax cost of capital of the portfolio company as a consequence of financial knowledge and experience... 

Depreciation is allowed as an operating expense, and hence as part of the production cost, as far as calculation of corporation tax liability is concerned. The rates and timing of such allowance against tax can vary, but the most likely method is to count it annually against an annual tax assessment. 

The corporation tax payment is usually a percentage of the PBT figure, and is frequently actually paid in the year following that in which the profits were earned. However, it is customary to account for it in the same year, as far as feasibility calculations are concerned. 

Taxes in this figure are corporate taxes, not the VAT mentioned earlier. 

A scheme for corporate tax reduction based on an instant depreciation of the entire investment and a special deduction to a value of 40% of the investments. For energetic utilisation of thermal technologies a criterion of 40% energy efficiency is applied. 

Information on corporate taxes in the United States is given on the Internal Revenue Service website at www.irs.gov. At the time of writing, the top marginal rate of federal income tax on corporations in the United States is 35%, which applies to all incomes greater than 18,333,333 (IRS Publication 542). Since almost all companies engaged in building chemical plants substantially exceed this income... 

In some countries, taxes are paid in a given year based on the previous year s income. This is true for the United States, where corporate taxes are based on a calendar year of operations and are due by March 15 of the following year. This complicates the calculations somewhat, but is easily coded into a spreadsheet. 

GNP = personal income 4- social security contributions + corporate saving -I- capital consumption allowances + corporate taxes on profits + indirect taxes and miscellaneous... 

Had today s marginal corporate tax rate (34 percent) been in effect at the time the NCEs in DiMasi s study were developed, the net after-tax cash outlay per successful NCE would have been no more than 80.1 million, and the full cost capitalized at a 10 percent cost of capital would be 171 million. At today s tax rate, with a cost of capital decreasing from 14 to 10 percent over the life of the project, the average cost of developing a new drug would be no more than 237 million. 

Second, taxes owed or payable depend not only on what is manufactured and sold but also on where it is manufactured. Drug companies can and do make decisions to manufacture products in jurisdictions that will afford them the best profile of after-tax cash flows. The availability of tax credits for locating manufacturing operations in U.S. possessions, such as Puerto Rico, substantially reduces the tax liability of pharmaceutical companies. (See chapter 8 for more detail.) Thus, the opportunity to make a new product in a low-tax jurisdiction means that the extra taxes incurred as a result of the introduction of a new group of products will certainly fall short of the statutory marginal corporate tax rate. 

Taken together, these measurement problems imply that the U.S. marginal corporate tax rate is too high a rate to apply to the cash flows associated with a new product after it is introduced to the market. A better approximation of the tax burden would be based on the ratio of taxes paid to income from ongoing pharmaceutical operations.22... 

Because effective corporate tax rates in Puerto Rico are substantially lower than in the United States, this tax credit represents a major form of Federal tax expenditure for pharmaceutical firms. Although little actual pharmaceutical R D is done in Puerto Rican locations (245), the credit may lead to more manufacturing jobs in the... 

---