Part 1 - AL-Tax

Chapter 14The dividends will be paid (t* 15%) as follows:To clarify, consider this example:DIV* d I JSCP (1 t*).Gross operating income $90,000Operating expenses $40,000Dividends (d) 60%TJLP (long-term interest rate) 12% per yearIncome tax (total) 34%Net equity (stockholder equity) before income $170,000 (capital $100,000,income reserves $40,000, and retained earnings $30,000).Net income, following Brazilian law, is:I (90,000 40,000)(1 – 0.34) $33.000d $33,000 60% 19.800E 170,000 33,000 19,800 183,200.The corporate income tax will be R$17,000, or 34% multiplied by (90,000 40,000),if the company does not decide to adopt the JSCP. Assuming the JSCP option, thenew figures are:JSCP (183,200 13,200) 12% $20,400.The two limits are calculated as follows:L 1 EBT/2 (90,000 40,000)/2 $25,000L 2 (LA RL)/2 (30,000 40,000)/2 $35,000.Given that JSCP ($20,400) is lower than the two limits, it can be tax deductible.The net income assuming JSCP is $19,536, orI* (90,000 40,000 20,400) (1 0.34) $19,536.The difference considering the net income ($33,000) is $13,464, orI I* JSCP (1 t) 20,400 (1 0.34) $13,464.At the end of the period, the stockholder equity will be a dependent variableof the dividend policy of the company. However, considering the same example331