Groups of Companies
Several jurisdictions provide a mechanism whereby losses or tax credits of one corporation may be used by another corporation where both corporations are commonly controlled (together, a group). In the United States and Netherlands, among others, this is accomplished by filing a single tax return including the income and loss of each group member. This is referred to as a consolidated return in the United States and as a fiscal unity in the Netherlands. In the United Kingdom, this is accomplished directly on a pairwise basis called group relief. Losses of one group member company may be “surrendered” to another group member company, and the latter company may deduct the loss against profits.
The United States has extensive regulations dealing with consolidated returns. One such rule requires matching of income and deductions on intercompany transactions within the group by use of “deferred intercompany transaction” rules.
In addition, a few systems provide a tax exemption for dividend income received by corporations. The Netherlands system provides a “participation exception” to taxation for corporations owning more than 25% of the dividend paying corporation.
Read more about this topic: Corporation Tax
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