To date, most consolidated tax groups have decided to allocate their income tax commitments based on the fictitious individual taxable income of each member of the group or on the basis of each member`s accounting income as a percentage of the group`s total accounting income. Acceptance of the allocation on these bases will ultimately depend on the facts and circumstances related to the tax situation of the various groups, as well as legislation, regulations and ATO guidelines, which generally apply to tax-sharing agreements. A contractual agreement established to define economic expectations among members of a group of companies used to consolidate/combine tax returns is referred to as a „tax-sharing agreement.“ In other words, such an agreement describes situations in which a member of the group is expected to be responsible or received economic consequences by a member of the group. Tax financing agreements complement tax-sharing agreements and explain how subsidiaries finance the payment of tax by the main company and when the main company is required to make payments to subsidiaries for certain tax attributes generated by subsidiaries that benefit the group as a whole (for example. B tax losses and tax credits). Under the new international financial reporting standards, tax groups must ensure that they have a tax financing agreement that uses an „acceptable allocation method“ under the „Urgent Questions“ (UIG) group Interpretation 1052 Tax Consolidation Accounting. If the tax financing agreement does not use an „acceptable allocation method,“ group members may be required to account for dividends and capital distributions or capital contributions in their accounts. A corporate tax division agreement is an agreement negotiated by the management of the parent company and the subsidiary. It recognizes the full value of participation in benefits and tax participation. The compensation clauses contained in the agreement protect other members of a group from violation or violation of transactions. Unpaid taxes by a subsidiary, a third party or a member of the group are therefore compensation for the losses incurred.
We recommend that you check your client`s circumstances. If the client is fiscally consolidated and there is no tax participation or financing agreement, please call a member of our team to discuss your client`s needs. If your client has entered these agreements, has the client also brought in or removed members of the group? It is important that all member organizations are parties to the agreements. Please call a member of our team if you need help. We have developed a wide range of precedents that document tax-sharing and tax financing regimes. Among these precedents are: a tax-sharing agreement „divides“ the group`s tax debt (if the main company is late) and limits the liability of group members according to the methodology defined in the agreement.