Tax
76. To ensure that returns are assessed in a way that is consistent with the NPV = 0 principle, the Commission calculates tax payable from taxable net profits rather than the prima facie tax based on profits in the regulatory accounts.
77. In calculating excess earnings, the Commission follows standard practice in incorporating the interest tax deduction in the WACC. The tax payable appearing in the calculation of excess earnings is the tax payable in the absence of debt. If the levered tax payable is positive, the unlevered tax payable is simply the levered tax payable plus the interest tax shield. If the gas business is in a tax loss position, the treatment is more complex. The options for treating tax in these circumstances, and other issues, such as the treatment of asset sales are discussed in detail in Chapter 10 (Treatment of Tax in Cost Benefit Analysis).
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