TY - JOUR
T1 - Inflation, tax integration and company valuation
T2 - The Latin American case
AU - Zurita, Salvador
AU - Castillo, Augusto
AU - Niño, Jorge
N1 - Publisher Copyright:
© 2018 Elsevier Inc.
PY - 2019/12
Y1 - 2019/12
N2 - Popular models for computing hurdle rates and valuation of companies were developed in the context of the USA tax code, which has two peculiar features. First, it computes taxes based on a nominal income basis. Second, it does not allow for integration between corporate taxes on earnings and personal taxes on dividends. Some Latin American countries do not share these characteristics of the USA tax regime. In this paper, we extend the standard formulas for valuation of companies to incorporate the effects of inflation on depreciation and interest expense tax shields, when they are computed under real versus nominal taxable earnings regimes. We also offer a modified, equivalent corporate tax rate formula that properly accounts for integration between corporate and personal taxes.
AB - Popular models for computing hurdle rates and valuation of companies were developed in the context of the USA tax code, which has two peculiar features. First, it computes taxes based on a nominal income basis. Second, it does not allow for integration between corporate taxes on earnings and personal taxes on dividends. Some Latin American countries do not share these characteristics of the USA tax regime. In this paper, we extend the standard formulas for valuation of companies to incorporate the effects of inflation on depreciation and interest expense tax shields, when they are computed under real versus nominal taxable earnings regimes. We also offer a modified, equivalent corporate tax rate formula that properly accounts for integration between corporate and personal taxes.
KW - Inflation
KW - Integration of corporate and personal taxes
KW - Nominal tax basis
KW - Real tax basis
KW - Tax code
KW - Valuation of companies
UR - http://www.scopus.com/inward/record.url?scp=85045109493&partnerID=8YFLogxK
U2 - 10.1016/j.jbusres.2018.03.041
DO - 10.1016/j.jbusres.2018.03.041
M3 - Article
AN - SCOPUS:85045109493
SN - 0148-2963
VL - 105
SP - 370
EP - 380
JO - Journal of Business Research
JF - Journal of Business Research
ER -