Countries operate in multiple countries and every country and state that a company is domiciled in has tax rates prescribed by domestic law. There is no one size fits all tax rate that is best when valuing a company using the DCF valuation approach. Multiple tax rates apply to a company. Federal /state statutory tax rates, Effective tax rates, marginal tax rates, etc.
This page addresses the question: What tax rate would you use if your cash flows are international and have different tax rates in different jurisdictions?
You have two choices if the company you are valuing is an international company with cash flows from different jurisdictions that have different tax rates:
- You can use the tax rate of the country of domicile.
- You can use the weighted average tax rate weighted by income.
The argument for the tax rate of the country of domicile is that the shareholders are predominantly in the country of domicile and so global profits are eventually repatriated to the country of domicile and taxable at that rate.
However, today you have companies that do not repatriate income for decades and companies have stock listed in different exchanges and therefore shareholders across the world. So some valuation practitioners prefer to use the weighted average tax rate weighted by income.