In Chile there is a so-called corporate tax which is 17% of the profits. However, this tax is used as a credit to lower the tax people. Each person pays taxes when they withdraw dividends from the company. How do I consider this situation in cash flows if the tax’s people rate is progressive?

Question

anonymous · Answer

I assume that you are valuing a company paying dividends. My suggestion is that you steer away as far as you can from individual taxes while you do the valuation. Bottom line: don't try to adjust your valuations for individual tax benefits... but it will affect dividend policy.

anonymous · Answer

Hi professor

Thank you very much for your answer. I have already considered your recomendation nevertheless  i can't stop  feeling uneasy for not considering any tax in my valuation. Taxes and death are certainty in life.
If Chilean companies don't pay taxes and work as retainer on behalf of shareholder personal taxes, could it be right that none of  valuations has to consider taxes? . if this is right the implication are huge, every valuation in my country is wrong, or do i have to consider the highest personal tax rate (40%) or a blended tax rate in oppose of not considering taxes ?. The mainstream use 17% of the profit as company tax because they do not want to complicate things.