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Development of financial strategy
3.2 The impact of taxation on financial strategy
Domestic tax implications
Profits generated by a new investment project will be taxable (net of
tax allowable depreciation).
Debt interest is tax deductible. Using debt to finance new
investments, gives tax savings when the interest is paid.
Dividends to shareholders will be taxed under income tax rules, but
share price rises due to good investments will be taxed under capital
gains tax rules (when the shares are sold).
International tax implications
Additional tax consideration – how to minimise the overall tax liability
of the international entity?
For example, a decision will need to be made as to where the head
office of the entity should be located.
Multinational companies are often attracted to set up their operations
in a low tax economy.
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