Impacts of the tax system on the cash flow discount model
Application of the General Model
DOI:
https://doi.org/10.24215/23143738e127Keywords:
Tax savings, tax systems, firm valuationAbstract
The determination of the tax savings´ value and the impact of income tax on the firm valuation is related to the current tax systems. The tax effects imply cash out flow and savings, and, must be analyzed with the tax systems where the firm operates. Modigliani and Miller (1963) and Miller (1977) works suppose a classical system of income tax. The World Trade Organization (OCDE), identify seven tax systems classified into two large groups: integrated and classical. The paper reviews the existing models, particularly the General Model. Next, shows the value equations corresponding to the different tax systems. Through an analysis of cases, the impact on the variables of the tax system in which the firm operates is analyzed, according to the systems classified by the OECD.
Downloads
Metrics
References
Arzac, E. y Glosten, L. (2005). A reconsideration of tax shield valuation. European Financial Management, 11(4), 453-461. https://doi.org/10.1111/j.1354-7798.2005.00292.x DOI: https://doi.org/10.1111/j.1354-7798.2005.00292.x
Booth, L. (2007). Capital cash flows. APV, and valuation. European Financial Management, 13(1), 29-48. https://doi.org/10.1111/j.1468-036X.2006.00284.x DOI: https://doi.org/10.1111/j.1468-036X.2006.00284.x
Castillo, A., Niño, J. y Zurita, S. (2016). Debt tax shields around the OECD world. Emerging Markets Finance and Trade, 53(1), 26-43. https://doi.org/10.1080/1540496X.2016.1145112 DOI: https://doi.org/10.1080/1540496X.2016.1145112
De Angelo, H. y Masulis, R. (1980). Optimal capital structure under corporate and personal taxation. Journal of Financial Economics, 8(1), 3-29. https://doi.org/10.1016/0304-405X(80)90019-7 DOI: https://doi.org/10.1016/0304-405X(80)90019-7
Deloitte. (s.f). Tax guides and highlights. Recuperado en julio de 2022 de https://dits.deloitte.com/#TaxGuides
Dempsey, M. (2019). Discounting methods and personal taxes. European Financial Management, 25(2), 310-324. https://doi.org/10.1111/eufm.12157 DOI: https://doi.org/10.1111/eufm.12157
Fernández, P. (2005). The value of tax shields is not equal to the present value of tax shields: a correction. WP SSRN, 1-8. https://ssrn.com/abstract=651206 DOI: https://doi.org/10.2139/ssrn.651206
Fernández, P. (2016). Valoración de empresas por descuento de flujos: 10 métodos y 7 teorías. SSRN. http://dx.doi.org/10.2139/ssrn.1266623 DOI: https://doi.org/10.2139/ssrn.1266623
Graham, J. (1999). Do personal taxes affect corporate financing decisions? Journal of Public Economics, 73(2), 147-185. https://doi.org/10.1016/S0047-2727(99)00006-7 DOI: https://doi.org/10.1016/S0047-2727(99)00006-7
Graham, J. (2003). Taxes and corporate finance: A review. The Review of Financial Studies, 16(4), 1075-1129. https://doi.org/10.1093/rfs/hhg033 DOI: https://doi.org/10.1093/rfs/hhg033
Graham, J. (2008). Taxes and corporate finance. En B. E. Eckbo (Ed.), Handbook of Corporate Finance –Empirical Corporate Finance (Vol. 2, Cap. 11). North Holland. DOI: https://doi.org/10.1016/B978-0-444-53265-7.50003-2
Massari, M., Roncaglio, F. y Zanetti, L. (2007). On the equivalence between the APV and the wacc approach in a growing leveraged firm. European Financial Management, 14(1), 152-162. https://doi.org/10.1111/j.1468-036X.2007.00392.x DOI: https://doi.org/10.1111/j.1468-036X.2007.00392.x
Miles, J. y Ezzell, J. (1985). Reformulation tax shield valuation: a note. The Journal of Finance, 40(5), 1485-1492. https://doi.org/10.1111/j.1540-6261.1985.tb02396.x DOI: https://doi.org/10.1111/j.1540-6261.1985.tb02396.x
Miller, M. H. (1977). Debt and Taxes. The Journal of Finance, 32(2), 261-275. https://doi.org/10.1111/j.1540-6261.1977.tb03267.x DOI: https://doi.org/10.1111/j.1540-6261.1977.tb03267.x
Modigliani, F. y Miller, M. (Junio de 1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297. www.jstor.org/stable/1809766
Modigliani, F. y Miller, M. (Junio de 1963). Corporate income taxes and cost of capital: A correction. American Economic Review, 53(3), 433-443. www.jstor.org/stable/1809167
Molnár, P. y Nyborg, K. (2011). Tax-adjusted discount rates: a general formula under constant leverage ratios. European Financial Management, 19(3), 419-428. https://doi.org/10.1111/j.1468-036X.2011.00619.x DOI: https://doi.org/10.1111/j.1468-036X.2011.00619.x
Niño, J., Zurita, S. y Castillo, A. (2014). Costo del capital e impuestos en un sistema tributario no integrado y en uno integrado: Generalización del modelo. El Trimestre Económico, 81(321), 109-132. https://doi.org/10.20430/ete.v81i321.110 DOI: https://doi.org/10.20430/ete.v81i321.110
Organización para la cooperación y el desarrollo Económicos (OCDE) (s.f.) Base de datos global estadísticas tributarias, tabla II.4. Recuperado en mayo de 2022 de https://www.oecd.org/tax/tax-policy/base-de-datos-global-de-estadisticas-tributarias.htm
Organización para la cooperación y el desarrollo Económicos (OCDE). (s.f.). OECD TAX DATABASE EXPLANATORY ANNEX Part II Taxation of corporate and capital income. Recuperado en mayo de 2022 de https://www.oecd.org/tax/tax-policy/tax-database/
Santander Trade (s.f). Establecerse en el extranjero. Fiscalidad. Recuperado en mayo de 2022 de https://santandertrade.com/es/portal/establecerse-extranjero
Sick, G. (1990). Tax-adjusted discount rates. Management Science, 36(12), 1432-1450. https://doi.org/10.1287/mnsc.36.12.1432 DOI: https://doi.org/10.1287/mnsc.36.12.1432
Taggart, R. (1991). Consistent valuation and cost of capital expressions with coporate and personal taxes. Financial Management, 20(3), 8-20. https://www.jstor.org/stable/3665747 DOI: https://doi.org/10.2307/3665747
Zurita, S., Castillo, A. y Niño, J. (2019). Inflation, tax integration and company valuation: The Latin American case. Journal of Business Research, 105, 370-380. https://doi.org/10.1016/j.jbusres.2018.03.041 DOI: https://doi.org/10.1016/j.jbusres.2018.03.041
Additional Files
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Gaston Silverio Milanesi, Maria Agustina Tennina
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Those authors who have publications with this journal, agree with the following terms:
a. Authors will retain its copyright and will ensure the rights of first publication of its work to the journal, which will be at the same time subject to the Creative Commons Atribución-NoComercial-CompartirIgual 4.0 Internacional (CC BY-NC-SA 4.0) allowing third parties to share the work as long as the author and the first publication on this journal is indicated.
b. Authors may elect other non-exclusive license agreements of the distribution of the published work (for example: locate it on an institutional telematics file or publish it on an monographic volume) as long as the first publication on this journal is indicated,
c. Authors are allowed and suggested to disseminate its work through the internet (for example: in institutional telematics files or in their website) before and during the submission process, which could produce interesting exchanges and increase the references of the published work. (see The effect of open Access)
