Available online at www.sciencedirect.com
EconomiA 14 (2013) 185–198
The influence of interest on net equity and interest rates on tax neutrality – a case study of the Brazilian corporate taxation Aloísio Flavio Ferreira de Almeida a , Nelson Leitão Paes b,∗ b
cão Getúlio Vargas, EAESP, Brazil
Programa de Pós-Gradua¸cão em Economia (PIMES/UFPE) e CNPq, Brazil
In this paper we visit the capital income taxation in Brazil to know whether and to what extent interest on net equity (INE) has an influence on tax neutrality, i.e., if it helps reducing debt financing advantage over equity. The paper also addresses the persistent Brazilian high interest rates influence on the cost of capital, especially for small and medium enterprises (SME), given that big companies are usually allowed to access low interest rates from BNDES, the National Public Development Bank in Brazil. Based on King and Fullerton methodology for computation of effective tax rates, this paper derives the pre-tax and post-tax rates of return on investment, the tax wedges and the correspondent effective tax rates in Brazil, comparing three sources of finance (debt, retained earnings and new equity) and three types of assets: machinery, buildings and inventories. Our simulations show that INE reduces the cost of capital for new equity by 40% but it cannot offset the debt advantage. On the other hand, very high interest rates as found in Brazil make debt finance the worst option, forcing SME to finance themselves. © 2013 National Association of Postgraduate Centers in Economics, ANPEC. Production and hosting by Elsevier B.V. All rights reserved.
JEL classiﬁcation: H22; H25; H32
Keywords: Corporate taxation; Investment; Profit; Equity; Debt
Este artigo analisa a tributac¸ão do capital no Brasil com o intuito de avaliar a influência dos juros sobre o capital próprio (JCP) na neutralidade tributária, isto é, se ele ajuda a reduzir a vantagem do financiamento por dívida em relac¸ão à capitalizac¸ão. O artigo também analisa a influência dos juros elevados no Brasil sobre o custo do capital, especialmente para as pequenas empresas, já que as empresas maiores tem mais facilidade de acesso a recursos com juros mais baixos do BNDES. Baseado na metodologia de King–Fullerton para o cálculo de taxas efetivas, este artigo deriva as taxas de retorno do investimento antes e depois da tributac¸ão, a cunha fiscal e as alíquotas efetivas no Brasil, comparando três tipos de financiamento (dívida, lucros retidos e capitalizac¸ão) e três tipos de ativos – máquinas, estoques e construc¸ões. As simulac¸ões indicam que o JCP foi capaz de reduzir o custo do capital na
E-mail address: firstname.lastname@example.org (N.L. Paes).
Peer review under responsibility of National Association of Postgraduate Centers in Economics, ANPEC.
1517-7580 © 2013 National Association of Postgraduate Centers in Economics, ANPEC. Production and hosting by Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.econ.2013.10.004
A.F.F. Almeida, N.L. Paes / EconomiA 14 (2013) 185–198
capitalizac¸ão em mais de 40%, mas não anulou a vantagem tributária do endividamento. Este resultado é alterado pelas altas taxas de juros no Brasil, que tornam o endividamento a pior opc¸ão e levam as pequenas empresas a recorrerem ao capital próprio. © 2013 National Association of Postgraduate Centers in Economics, ANPEC. Production and hosting by Elsevier B.V. All rights reserved.
Palavras clave: tributación; inversión; ganancias; interés; endeudamiento
The purpose of this paper is to study the Brazilian model of capital income taxation in order to find out to what extent it is neutral to domestic investment decisions. The analysis was guided to achieve capital tax neutrality and to improve the tax system efficiency. Neutrality matters because taxes may distort investment decisions. An investment that would be...
References: Australia Government, 2006. International Comparison of Australia’s Taxes. Australia Government, Canberra.
Brazilian Central Bank (BCB), 2011. Annual Report 2010, Available in http://www.bcb.gov.br/?BOLETIMANO, visited in November.
Brazilian Service to Support Micro and Small Enterprises – SÃO PAULO BRANCH (SEBRAE-SP), 2009. O Financiamento das Micro
e Pequenas Empresas (MPEs) Paulistas, Available in www.biblioteca.sebrae.com.br/bds/bds.nsf/97cc241db9bd939e03257170004bcd72/
Devereux, M., Griffith, R., Klemm, A., 2002. Corporate income tax reforms and international tax competition. Economic Policy 17 (35), 451–495.
European Comission, 2009. Effective Tax Levels: Using the Devereux-Griffith Methodology. Project for EU Commission TAXUD/2008/CC/099.
FEU, A., 2004. Avaliac¸ão da Produtividade de Capital no Brasil no Século XX, Available in http://ecen.com/eee43/eee43p/produtiv cap
secxx.htm, site visited in June.
Institute for Fiscal Studies (IFS), 1997. Taxing Profits in a Changing World. Institute for Fiscal Studies, London.
Institute for Fiscal Studies (IFS), 2010. Mirrlees Review: Dimensions of Tax Design. Institute for Fiscal Studies, London.
Institute for Fiscal Studies (IFS), 2011. Corporate Tax Rate Data, Available in www.ifs.org.uk/publications.php?publication id=3210. Viewed in
King, M., Fullerton, D., 1984. The Taxation of Income from Capital: a Comparative Study of the US, UK, Sweden and West Germany. University
of Chicago, Chicago.
Organisation for Economic Co-Operation and Development (OECD), 1991. Taxing Profits in a Global Economy: Domestic and International Issues.
Polito, V., 2010. Up or Down? Capital Income taxation in the United States and the United Kingdom. CES-Ifo Working paper n. 3260,
Please join StudyMode to read the full document