Part 1 - AL-Tax

International Taxation Handbookadopted (rate of 60%), the stockholder equity will be as follows:Integralized capital $100,000Income reserve $40,000Retained earnings $70,000Net income of the period $13,200Stockholder equity $183,200Should the company choose to keep the same level of stockholder equity as inthe previous situation (e.g. $183,200), it must make an additional distribution ofinterest for the JSCP situation. Given that the net adjusted income is $19,536, thecompany will pay an additional $6536 to stockholders.The net cash flow to the stockholders will be higher when the company adoptsthe JSCP (more than 20%), as follows:Original situation $19,800JSCP situation 17,340 6336 23,676.14.4 Tax benefits for rural activities (agribusiness)Brazilian tax law has established different taxation rules according to investmentsegment. For agribusiness (rural activities), for example, tax benefits are grantedthrough total depreciation of fixed assets, except for the cost of the unused land,in the same year the fixed assets were purchased. In addition, these types of companiesenjoy less rigid rules for tax settlement of losses (other types must followmuch stricter limits).For example, for companies not engaged in rural activities, depreciationexpenses are based on useful economic life as defined by the Secretaria da ReceitaFederal (the governmental body responsible for tax rules). Therefore, operatingincome before tax and depreciation expenses is:EBTDep EBT DepT EBT tT (EBTDep Dep) tI EBT TI (EBTDep Dep) (1 t),where I net income, t rate, Dep depreciation expense, and T corporatetax (expense).332