Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Tax (4th edition)
Yes. Major taxpayers may opt to be taxed under a special group taxation regime.
The application of this regime is subject to the following requirements:
- The companies must be deemed major taxpayers for Angolan tax purposes.
- The companies must be resident and have their effective place of management in Angola.
- The parent company must hold, directly or indirectly, at least90% of the share capital of other companies and more than 50% of the voting rights, for a minimum holding period of two years.
Fiscal consolidation is not allowed by the Brazilian legislation. Each company must calculate and pay its own taxes. On the other hand, several companies try to offset losses in intragroup transactions, several of them challengeable from a legal and jurisprudential standpoint.
Although there has been ongoing discussions on the opportunity to adopt a full or partial loss consolidation system in Canada, currently there is none, in large part due to the practical problems that it would cause to inter-provincial allocation of income and losses. There are, however, several loss-transfer techniques that may be considered, some of which are deemed acceptable by the tax authorities. Transfer of foreign losses is typically not an option.
Trading losses incurred by one member of a group of companies may be offset against trading profits of another group company by way of group relief, provided that the losses and profits accrued in the same year of assessment and both companies were members of the same group for the whole of the tax year concerned. A subsidiary that is formed during a tax year (as opposed to an existing company that is acquired) is treated as being a member of the group for the whole tax year. Two companies are deemed to be members of a group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company. A '75% subsidiary' means holding at least 75% of the voting shares with beneficial entitlement to at least 75% of the income and 75% of the assets on liquidation. Until the 2015 tax year group loss relief was available only for losses incurred by Cyprus tax resident companies. In order to align the loss relief provisions with the decision of the European Court of Justice in the Marks & Spencer case, the law was amended in 2015 so that a subsidiary company which is tax resident in another EU member state can surrender its taxable losses to another group member company that is tax resident in Cyprus, provided the subsidiary has exhausted all means of surrendering or carrying forward the losses in its member state of residence or to any intermediate holding company.
The amount of taxable losses that may be surrendered is calculated on the basis of the Cyprus tax laws. Subsidiaries resident in countries with which Cyprus has a double tax agreement or an agreement to exchange tax information may also surrender losses in the same way.
Germany operates a fiscal consolidation regime for income and trade tax purposes, a so-called fiscal unity (Organschaft). Within a fiscal unity the profits and losses are pooled and attributed to the parent company which is liable for the taxes. The requirements for establishing a fiscal unity for income and trade tax purposes are quite complex and formalistic. Amongst others, the parent and the subsidiary have to conclude a profit- and loss-pooling agreement which basically has to be carried out for a minimum term of 5 full years. During that period the profit- and loss-pooling agreement may only be terminated for good cause.
In addition, there is a fiscal unity for VAT purposes. Any supply of goods and service within the fiscal VAT unity is treated as non-taxable for VAT purposes.
Losses can be carried forward indefinitely but there is no such relief. Although it is possible to have consolidated accounts for a group, there is no group relief available in Gibraltar for tax purposes. Entitles would be taxed individually in accordance with the profits of that entity.
There is no fiscal consolidation nor is there recognition of groups of corporates for tax purposes in Greece.
India does not have the concept of group taxation for corporates and each entity is taxed on independent basis on its own income.
Ireland does not operate a fiscal consolidation system but rather provides for a system of group relief. An Irish resident company can surrender losses to another Irish resident group company. The surrender is achieved by making an appropriate election in the corporation tax return. It is not necessary that payment is made for the economic value of the loss but a tax free payment may indeed be made. In order for a ‘group’ to exist there must be a 75% beneficial ownership relationship (directly or indirectly) between the two companies traced through companies resident in the EU or DTA partner jurisdictions.
In order to comply with the European Court of Justice ruling in the Marks & Spencer case, in certain circumstances an Irish company may also claim relief for losses sustained in a direct subsidiary resident in the EU.
Consolidated tax returns are generally not allowed under Israeli law; an exception applies, however, in the case of an Israeli-resident “industrial” company or a company that is a holding company of industrial companies. An industrial company is a company that receives at least 90% of its revenues from an industrial facility engaged in manufacturing activities including software and other high-tech companies’ activities. An industrial company, or an industrial holding company, may file a consolidated tax return on behalf of itself and its industrial company subsidiaries, provided that all the industrial companies included in the consolidated group are part of a single assembly line or manufacturing process.
A ﬁscal consolidation regime has been introduced since 2004. The regime is available to:
- Italian resident companies controlled by an Italian resident parent company;
- Italian resident companies controlled by a non resident parent company with an Italian permanent establishment, provided that the parent company is tax resident of a jurisdiction with an agreement for the exchange of information with Italy;
- Italian resident companies controlled by a parent company tax resident of an EU or EEA member State;
- Italian non-resident companies with an Italian permanent establishment can be included in the consolidation perimeter as controlling company (if resident in a State that signed a tax treaty with Italy) or as controlled company (if resident in a EU/EEA State).
Austrian law provides a group taxation system both for corporate income and VAT purposes.
For corporate income tax purposes any domestic corporation having a common shareholder holding at least 50% in the share capital and voting rights of such corporation may elect to be a group member. The group will be headed by the common shareholder, which also has to fulfil certain requirements.
The income of each group member has to be calculated separately (including filing annual corporate income tax returns to the Austrian tax authorities) and is finally allocated to and consolidated at the head of the tax group. The heading corporation is the only entity of the group against which CIT will be levied (i.e., it receives the CIT assessment for the whole group).
It is also possible to include non-Austrian corporations into the group (certain restrictions apply). With respect to non-Austrian group members only tax losses will be included in the group consolidation on a pro-rata basis, if the subsidiary is a resident of a country with which Austria has concluded comprehensive mutual assistance agreements in tax matters. Any such loss will be subject to a recapture upon utilisation of the losses in the foreign jurisdiction in subsequent years or upon withdrawal from the tax group.
The group has a minimum duration of three calendar years; a recapture on a stand-alone basis takes place for all group members which are not meeting the minimum adherence of three full accounting years.
For VAT groups different criteria apply.
Yes, Japan has a consolidated tax system. Japanese corporations may choose to use the system, subject to approval by the tax authority. Under the system, a Japanese corporation and its directly or indirectly wholly-owned Japanese subsidiaries constitute a consolidated tax group. Only Japanese corporations can be members of such consolidated tax groups. All the directly or indirectly wholly-owned Japanese subsidiaries are required to be members of the consolidated tax group.
The corporate tax to be paid by the consolidated tax group is calculated based on the consolidated income of the group and paid by the ultimate parent company of the group to the tax authority.
Japan also has a group taxation system. The group taxation system mandatorily applies to a Japanese corporation and its directly and indirectly wholly-owned Japanese subsidiaries. Under the system, the realization of income or loss arising from the transfer of certain assets (e.g. fixed assets, land, certain securities), the book value of which is JPY 10 million or more, will be deferred until a taxable event occurs (e.g. depreciation, further transfer of such assets). In addition, a member corporation of such group is not subject to tax on donations made from another member corporation under the system. Please note that income and loss is not set off among the member corporations under the group taxation system.
- Fiscal unity for direct tax purposes
Luxembourg allows a group of companies to apply a fiscal unity (or tax consolidation). Under such regime, the respective taxable profits of each company in the consolidated group are pooled or offset to be taxed on the aggregate amount, which means that the group is effectively treated as a single taxpayer.
Generally, the conditions to qualify for a fiscal unity are as follows:
- each company that is part of the tax unity is a Luxembourg resident fully taxable company (the top entity may be a Luxembourg permanent establishment of a fully taxable non-resident company) (the “Eligible Company”);
- at least 95% of each subsidiary’s capital is directly or indirectly held by an Eligible Company;
- each company’s fiscal year starts and ends on the same date; and
- the fiscal unity is applied for at least five financial years.
The taxable income/loss of the fiscal unity is calculated as the sum of the taxable income/loss of each constitutive entity. The vertical fiscal unity regime has been extended since 1 January 2016 in accordance with the CJEU case law in particular to allow horizontal integrations. Eligible Companies (at least two Luxembourg companies) that are held by a common parent established in any European Economic Area country and subject to tax comparable to Luxembourg’s CIT in its country of residence are now also permitted to form a fiscal unity. Companies consolidated for CIT are also automatically consolidated for MBT. However, there is no tax consolidation for NWT purposes.
Securitisation entities and venture capital companies are excluded from the possibility to form a fiscal unity in order to prevent tax evasion schemes.
- VAT group
Since mid-2018, Luxembourg introduced a revised VAT group regime (in line with the CJEU Skandia case (C-7/13). Such VAT group regime treats all of the transactions between its members as “out of the scope” of the VAT. One of the major differences between the new and the former regime is that the VAT group regime is restricted to persons established in Luxembourg and Luxembourg branches of foreign companies, whereas the former regime allowed for grouping with other Member States of the EU.
Companies wishing to benefit from the VAT group regime must generally meet three requirements proving their bound: there must be (i) an economic (ii) financial and (iii) organisational link with the other VAT group company(ies).
Malaysian laws allow for group relief for a group of companies. Subject to the statutory requirements, a surrendering company may surrender not more than 70 per cent of its adjusted loss in the basis period of a year of assessment to one or more related companies if both are tax residents in the basis year for that year of assessment and incorporated in Malaysia.
As of January 1, 2014, an optional regime for groups of companies was incorporated to the Income Tax Law. This regime is composed of two types of companies: an integrating company and the integrated companies.
In general terms, this optional regime enables the integrating company to determine income tax due by the group on a consolidated basis and to defer a portion thereof for up to three fiscal years.
It should be noted that in order for a legal entity to be eligible as an integrating company, the following conditions ought to be met: (i) it must be a Mexican tax resident; (ii) it must hold more than 80 per cent of the integrated companies’ voting shares (even if said shares are indirectly held by the integrating company by means of another integrated company of the group); (iii) no more than 80 per cent of the integrating company’s voting shares ought to be held by one or more companies, unless they are tax residents of a jurisdiction with which Mexico has concluded a tax information exchange agreement.
On the other hand, more than 80 per cent of the voting shares of a corporation must be directly or indirectly (or both) held by an integrating company for the first to be eligible as an integrated company.
However this regime does not include all type of entities, i.e.: (a) non-profit legal entities; (b) legal entities that are considered to be part of the Mexican financial system, (c) foreign tax residents even in cases where they have a permanent establishment in Mexico (d) maquila companies, etc.
The Netherlands has the fiscal unity regime (fiscale eenheid). Under the fiscal unity regime, corporate income tax is levied from the fiscal unity parent company for all companies consolidated in the fiscal unity. The benefits of a fiscal unity are that, in principle, profits of one company can be set off against losses of another company in the same financial year and that only a single tax return has to be filed for corporate income tax purposes.
A fiscal unity can be formed if the parent company owns at least 95% of the shares (representing 95% of voting rights and equity interest) of a subsidiary and all other requirements (e.g. legal form, financial year, etc.) are met.
In order to form a fiscal unity, the companies wishing to form the fiscal unity must file a joint written request with the Dutch tax authorities. The fiscal unity can be formed with retroactive effect of a maximum of 3 months prior to the date of filing.
The fiscal unity regime is, in principle, a full consolidation regime. Therefore, all assets and liabilities of a fiscal unity company are attributed to the fiscal unity parent company. Each member is jointly and severally liable for the corporate income tax due by the parent company.
Pursuant to legislation adopted after case law from the European Court of Justice, the fiscal unity regime is not applied in relation to a number of anti-abuse rules, most notably the anti-base erosion interest deduction rule (article 10a of the Dutch Corporate Income Tax Act of 1969).
The fiscal unity is currently under review. Policy options are being explored going forward. The most likely options are that the fiscal unity regime will remain in existence as is and, if necessary, further legislation is put in place if case law from the European Court of Justice requires this or that a group relief-like regime (transfer of profits or losses to group companies) will replace the fiscal unity regime.
No, fiscal consolidation is not allowed, so that losses cannot be relieved across group companies.
There is no fiscal consolidation for tax purposes under Philippine tax laws. Likewise, there is no group contribution system for tax purposes. Corporations are treated separately for tax purposes. However, for tax investigation purposes, the tax authority considers the grouping of several companies under one controlling interest (usually set at 30%) to determine proper allocation of cost and expenses. Group contribution can be allowed across affiliated companies subject to proper documentation and it is usually cleared with the tax authority by way of a ruling to avoid issues with tax examiners.
Poland provides for a tax consolidation regime, known as a ‘tax capital group’. Taxable
income for the group is calculated by combining the incomes and losses of all the companies forming the group.
A tax capital group under Polish CIT Act may be formed only by limited liability companies and joint-companies based in Poland and under certain conditions. Some of the requirements for establishing a capital group are as follows:
a. having a registered office (for companies that belong to a group in Poland);
b. average capital of each group company of no less than PLN 500,000 (approx. EUR 125,000);
c. minimum share in subsidiaries by the parent company - 75 per cent;
d. not taking advantage by group companies of income tax exemptions under other acts (the use of an exemption due to activity conducted within a SEZ - does not preclude from establishing tax capital group);
e. minimum share of income in the revenue of the tax group - 2 per cent;
f. specific requirements regarding the form and wording of the agreement;
g. minimum term of the agreement - 3 years;
h. no option to expand the agreement to include other companies (and other restrictions).
These requirements have to be met continuously throughout the period of the group’s existence. Breach of any requirement will lead to termination of the group’s capacity of taxpayer and in potential tax arrears at the level of group members.
A tax capital group cannot utilize tax losses generated by group members prior to formation of the group. Any tax loss generated by the group cannot be offset by its members against their tax profits after the group ceases to exist.
Taxation under the special tax regime for groups of companies is available, to companies with head office and effective management in Portugal. The group taxation regime may apply, provided one of the companies directly or indirectly holds 75% or more of the statutory capital of the others and more than 50% of the voting rights.
The application of this tax regime depends on the fulfillment of the following requirements:
- Companies must be tax residents in Portugal (even if held through an EU or EEA group company);
- Companies must be subject to the normal regime of taxation at the highest corporate tax rate;
- Companies must maintain a minimum holding participation of 75%;
- All companies must be held by the parent company for more than one year (excluding newly incorporated companies);
- Companies cannot be inactive for more than one year;
- Companies cannot be dissolved or insolvent;
- Companies cannot have tax losses in the three years prior to the regime application, unless the companies have been held by the parent company for more than two years;
- Companies cannot have a tax period different from that of the parent company.
Additionally, the parent company:
- Should not be controlled by any other Portuguese-resident company that fulfils the requirements to be the parent company;
- Should not have renounced to the application of this regime in the three previous years.
The application of this tax regime normally allows the group to offset losses incurred by one company against profits of another company. Tax losses obtained prior to the beginning of the tax grouping can be carried forward and offset only up to the particular company's taxable income.
It is possible to apply the group taxation regime if the dominant company has its registered head office or place of effective management in an EU or EEA country (in the latter case, provided there is administrative cooperation on tax matters similar to the one in place with the European Union).
Group taxation is not recognised in South Africa. However, relief is granted for transactions between group companies to allow for reorganisations, provided certain requirements are met.
Losses incurred by one entity within an economic group cannot be transferred to another entity within the same economic group, nor can such losses be off-set against the profits of another group entity.
The Spanish CIT law allows Spanish tax resident companies and Spanish PE belonging to a Spanish or multinational group to be taxed as a single group and, therefore, apply a special tax consolidation regime for CIT purposes.
In order to apply this regime, main requirements are the following:
a The Spanish companies should be owned (directly or indirectly) by the same parent company (either resident or non-resident);
b The parent company (either resident or non-resident) of the tax group must hold a direct or indirect, minimum holding of 75% (70% for quoted companies) and the majority of voting rights in the Spanish companies belonging to the group;
c The above participation should be maintained during the whole taxable period; and
d The parent company cannot be tax resident in a tax heaven.
The main characteristics of the tax consolidation regime are described below:
(i) The taxable income results from the sum of all the taxable incomes of each Spanish tax resident companies of the tax group, corrected as established in the following points;
(ii) Tax losses of any of the companies of the tax group can be offset against any company tax profits;
(iii) Tax profits generated from intragroup transactions are deferred and only included in the consolidated taxable income when:
a. They are carried out with third parties;
b. One of the intragroup companies part of the transaction ceases to form part of the group; and
c. Consolidation regime is no longer applied.
(iv) Specific limitations apply concerning the offsetting of tax losses or the application of tax credits generated by the group companies before they formed part of the tax group; and
(v) No withholding applies on payments made at intragroup level.
Switzerland does not provide for fiscal consolidation. However, if the fair market value of a subsidiary of a Swiss entity falls below its tax book value, a depreciation reducing ordinary profits is allowed.
Yes. Under US tax law, US corporations that are affiliated through 80 percent or more corporate ownership may elect to file a consolidated return reflecting the group’s combined income and loss, instead of each corporation filing a separate return. In this regard, US corporations filing a consolidated return generally are treated as a single entity. As a result, the losses of one corporation can offset the income (and thus reduce the otherwise applicable tax) of other affiliated corporations. Some states may not follow federal consolidated return filings.
The UK does not provide for fiscal consolidation of company groups. Each company within a corporate group must pay corporation tax on profits. However, group relief, which allows certain types of loss of one group member to be surrendered to another, is available. Any amount of trading losses, non-trading loan relationship deficits and excess capital allowances may be surrendered and do not need to be used first by the loss-making company. However, all other current-year losses (such as property business losses, qualifying charitable donations) can only be surrendered as group relief to the extent that they exceed the surrendering company’s other profits in the accounting period.
Belgium does not have a fiscal consolidation regime. Neither are there any rules on what can constitute a group for tax purposes.
The Belgian government has announced in its July Agreement that it is examining the possibility of introducing a consolidation regime.
Group consolidations for tax purposes is not applicable in Panama.