2.4 – Transaction Example
The different ISS tax rates between São Paulo and Barueri provide different after tax revenue for Adyen. The lower tax rate of Barueri allows for a high margin pert transaction and this additional cash can be used as seen fit for the company’s needs. It can either be used for reinvestment or other cash needs. The effect of the reduced tax burden can be seen here in a transaction example of 1000 BRL with a 3% commission for Adyen resulting in a 30 BRL before tax revenue.
Value Commission 3% ISS PIS - COFINS After Tax Revenue
Barueri 1000 30 0.60 2.78 26.63
São Paulo 1000 30 1.50 2.78 25.73
The difference of between the two after tax revenues is .90 BRL cents, which is roughly 3.5% more after tax revenue. The added amount of cash is significant for any company but the advantage can take other forms. The difference in ISS rates also allow a PSP in Barueri to reduce their commission 10 basis points to 2.9% and still earn roughly the same after tax revenue. Therefore, not only does the lower ISS rate afford additional cash on hand, it can also make Adyen more competitive with price, which is crucial when entering a new market and trying to gain market share. The tax advantages of Barueri are magnified when examined at a larger scale of the …show more content…
The period of analysis is measured from 2012 through 2015. The 4-year period represents the time from when Adyen began operating in Brazil to when the applicable service code and ISS rate we’re reduced to 2%. The two cash flows by ISS rate for the 4-year period are brought to the present value in order to determine financial difference. The calculation of the difference allows for the analysis of whether the tax savings is significant enough to have located in Barueri instead of São Paulo during the first 4 years of
The different ISS tax rates between São Paulo and Barueri provide different after tax revenue for Adyen. The lower tax rate of Barueri allows for a high margin pert transaction and this additional cash can be used as seen fit for the company’s needs. It can either be used for reinvestment or other cash needs. The effect of the reduced tax burden can be seen here in a transaction example of 1000 BRL with a 3% commission for Adyen resulting in a 30 BRL before tax revenue.
Value Commission 3% ISS PIS - COFINS After Tax Revenue
Barueri 1000 30 0.60 2.78 26.63
São Paulo 1000 30 1.50 2.78 25.73
The difference of between the two after tax revenues is .90 BRL cents, which is roughly 3.5% more after tax revenue. The added amount of cash is significant for any company but the advantage can take other forms. The difference in ISS rates also allow a PSP in Barueri to reduce their commission 10 basis points to 2.9% and still earn roughly the same after tax revenue. Therefore, not only does the lower ISS rate afford additional cash on hand, it can also make Adyen more competitive with price, which is crucial when entering a new market and trying to gain market share. The tax advantages of Barueri are magnified when examined at a larger scale of the …show more content…
The period of analysis is measured from 2012 through 2015. The 4-year period represents the time from when Adyen began operating in Brazil to when the applicable service code and ISS rate we’re reduced to 2%. The two cash flows by ISS rate for the 4-year period are brought to the present value in order to determine financial difference. The calculation of the difference allows for the analysis of whether the tax savings is significant enough to have located in Barueri instead of São Paulo during the first 4 years of