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). Business groups are encouraged to consider entering into tax-sharing and tax financing agreements as part of their entry into the tax consolidation system. If they join the tax consolidation system, business groups need to think about how best to minimize the application of joint and several liability related to group income taxes. They must also consider the extent to which subsidiaries finance the payment of these debts by the main company. Both issues can be managed by business groups through tax-sharing agreements and tax financing agreements. 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. Tax financing agreements also determine tax accounting inflows into the financial statements of tax group members (i.e., deferred tax assets and deferred tax liabilities). We have developed a wide range of precedents that document tax-sharing and tax financing regimes. Among these precedents, it should be noted that, to date, most consolidated tax groups have decided to allocate their income tax commitments based on the fictitious 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. The email address cannot be subscribed. Please, do it again. «Lexology is a quick and useful indicator of developments in the legal field. He warns me of changes in the legal environment in South Africa that I may not have discovered otherwise or that I had immediate access to as a company lawyer. It is a trigger for me to study such changes in the legal landscape in South Africa, as they can affect my work and that of my employer. I think receiving lexology gives me a competitive edge. However, each subsidiary may be jointly liable to the Australian tax authorities for the full amount of group income tax if the main company does not pay that debt. This joint and several liability can have negative consequences for the group, including external financing agreements, solvency requirements, credit rating agency audits, the sale of subsidiaries and the functions of directors. This site is protected by reCAPTCHA and Google`s privacy rules and terms of use apply.
As part of the tax consolidation, it is the main company of the consolidated tax group that is primarily responsible for the group`s income tax liabilities. Learn more about FindLaw`s newsletter, including our terms of use and privacy rules.
