Part 1 - AL-Tax

International Taxation Handbookusing one of the following two alternatives (or whichever yields the largestamount):L where L 1 limit 1, EBT income before tax and after interest, L 2 limit 2,LA retained earnings, and RL the income reserve (income reserve is one ofthe possible destinations of net income, according to the decision of a shareholdermeeting).We obtain the new net operating income before tax and after interest as follows:EBT* EBT JSCP.We obtain the new income corporate tax as:LT* EBT* tT* (EBT JSCP) t,The difference between the two incomes (with and without JSCP) is:I I* EBT (1 t) EBT* (1 t)I I* (EBT EBT*) (1 t)I I* JSCP (1 t).12EBT2(LA RL) ,2JSCP are thus similar to stockholder dividends. However, they can be taxdeductible. On the other hand, if the company does not adopt JSCP,DIV d I,where DIV dividends, d part of the net income available to be distributed,and I the net income period.Considering JSCP as part of the net income and thus taxable (at a rate of 15%),the expression JSCP i E a is probably different if compared to the decisioncompany payoff paying dividends. In this case, Brazilian law permits the paymentof dividends. In order to maintain the same proportion of payments, as ifthere were no JSCP payments, we calculate the JSCP net of tax effects as follows:JSCP (1 t*).330