Broad Guidelines For Calculating Gold Fields' Effective Tax Charge
It has come to our attention that the consensus earnings estimates for Gold Fields in the market is consistently overstated because many market participants have difficulty calculating Gold Fields’ effective tax charge, which gives rise to unrealistically low tax forecasts and therefore earnings estimates that are too high.
In order to assist we provide the following broad guideline which, while not exact, will result in a reasonable base for calculating the approximate effective tax charge for any period.
Based on current tax rates and formulas in the various countries in which Gold Fields operates, Gold Fields’ effective tax rate is approximately 32% of the Profit/(loss) before taxation in the income statement.
However, one should not calculate the effective tax charge by simply calculating 32% of the number that appears in the Profit/(loss) before taxation line as there are certain items above that line that do not carry a tax benefit and need to be added back before the approximate effective tax charge is calculated.
Starting with the Profit / (loss) before taxation line, one needs to add back all or part of the following items that typically do not carry a tax benefit. Calculating 32% (or your assumption of the effective tax rate) of the end result should provide a number that is reasonably close to the effective tax charge for the period.
Net interest (paid)/received (Based on current debt levels, the majority needs to be added back - year to date this has averaged approximately 80% per quarter)
Share of results of associates after taxation
Feasibility and evaluation costs
Non-recurring items (while difficult to determine in advance, certain non-recurring items of a capital nature such as the impairment of assets are added back)
For further guidance please consult page 84 of the 2012 financial statements.
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