In calculating the cost of capital, PTC considered the effective tax rate obtained directly from the annual report and accounts, using the ratio between income tax for the financial year and earnings before tax.
The effective tax rate may suffer a lot of volatility from year to year (See Table 11), since it is dependent on the adjustments that are made each year to the nominal tax rate in terms of permanent and/or temporary differences (e.g. capital gains, goodwill, equity) which contribute to reducing regulatory predictability with regard to the rate of cost of capital. Furthermore, the implementation of the accounting standardisation system, which comes into force from 2010, could substantially alter the adjustments to be considered in ascertaining the effective rate.
Table 11 - Tax rate
In this respect, determining the nominal tax rate is less complex than determining the effective tax rate, while it provides greater regulatory predictability and a figure which is set from outside the company and which is easily observable. In addition, over the long term, the effective tax rate will tend towards the nominal tax rate, since the adjustments tend to offset each other.
In light of the above, ICP-ANACOM determined to use the nominal tax rate, assuming a value of 26.50% for the three-year period of 2009-2011.
