Finally, let's consider this tax, which is a tax on profits earned. We need to work out what our taxable income is and then multiply it by the tax rate that applies in the country in which we are operating. That is the tax that the company, the project company will need to pay. But it isn't quite as simple as that. If the company makes a loss, we cannot take a negative taxable income, multiply it by the tax rate, and assume that that is money we will get back from the government. No, if the company makes a loss, they will pay zero tax, but they do get the right to use that loss at some future period. It's what we call a net operating loss or NOL. So the next time that the business makes some money have positive taxable income, we will first deduct any losses that were brought forward from previous years. It's the amount after deducting the loss is what we will then pay tax on. So profit minus NOLs brought forward times by the tax rate. We also need to distinguish between different depreciation rates. Companies can decide their own depreciation rates. It's an internal decision, but for tax purposes, the depreciation allowance that you are allowed to claim against your profit is set down in legislation. So it's quite common that there is a difference between the depreciation that's in the income statement, the internally decided rate, and the depreciation that you are allowed to claim in the tax return. We also need to think about interest deductibility. Interest is a business expense. Usually we can claim it for tax purposes as a reduction of our taxable income, but there are limits to how much we can deduct. In most cases, the limit is 30% of the global EBITDA of the company. That's earnings before interest, tax, depreciation, and amortization. Of course, you can pay more interest than 30% of EBITDA. It's just that you won't be able to claim it as a tax deduction. The tax rate is probably the simplest out of the items that we need to be able to work out the taxes payable and we can just get that rate from the most recent legislation. If you know that the tax rate is likely to change in the near future, then use that near future changed rate, use whatever rate has been approved or been legislated for those future periods.
