Hi, two questions on tax allowance in pricing for BLAGAB fund please, this comes from chapter 29. I am getting confused on tax... For a proprietary, 1) in excess I situation. Do we net down both I and E at 20%, and the emerging profits is taxed at 4%? 2) in excess E situation. Do we use gross I and E, and the emerging profits less than the minimum profit is taxed at 24%, and above minimum profits taxed at 20%? Thank you.
Yes, we net down both I and E here. How we tax the profits depends on whether the profits are greater than or less than the I-E. If the profits are less than I-E then we only pay an extra 4% as you suggest. However, if profits are bigger than I-E then we need to pay 24% on the full profits - this means tax profits equal to I-E at an extra 4% (as we've already paid I-E tax at 20%) and any excess profits at 24%. Yes we use gross I and E here. The emerging profits are the same as the minimum profit (as this is just the profit in the trading accounts). So we tax all the profits at 24%. Best wishes Mark
