Alternatively, if your customer has these agreements, has the customer brought in or out of the group? It is important that all member companies are parties to the agreements. Please call a member of our team if you need help. Tax financing agreements also determine the tax accounts in the financial statements of members of tax groups (i.e., deferred tax assets and deferred tax liabilities). However, any subsidiary may be held jointly and severally liable to the Australian Tax Office for the total amount of a group income tax debt if the principal company is in arrears in the payment of that obligation. This joint and several liability may have negative consequences for the group, in particular as regards external financing arrangements, solvency requirements, audits of credit rating agencies, the sale of subsidiaries and the obligations of directors. We have developed a wide range of precedents that document tax sharing and financing agreements. These precedents include: tax financing agreements complement tax sharing agreements and determine how subsidiaries finance the payment of taxes by the main company and when the main company is required to make payments to subsidiaries for certain tax attributes generated by those subsidiaries and which benefit the group as a whole (e.g. B tax losses and tax credits). Business groups are encouraged to consider tax-sharing agreements and tax financing agreements as part of their accession to the tax consolidation system.
A tax-sharing agreement “shares” the tax debt of the group (in the event of default of the main company) and limits the liability of the group members according to the methodology defined in the agreement. Only a valid tax-sharing agreement is effective in limiting the joint and several liability of group members. Under the new International Financial Reporting Standards, tax groups must ensure that they have a tax financing agreement that applies an “acceptable allocation method” according to the Urgent Issues Group`s (UIG) 1052 Tax Consolidation Accounting interpretation. If the tax financing agreement does not provide for an “acceptable allocation method”, group members may be required to account for dividends and capital distributions or capital injections considered capital deposits in their accounts. We recommend that you check your client`s circumstances. If the client is consolidated for tax purposes and does not have a tax sharing agreement or tax financing agreement, please call a member of our team to discuss your client`s needs. So far, most consolidated tax groups have decided to allocate their income tax liabilities on the basis of each group member`s notional independent taxable income or on the basis of each member`s accounting profit as a percentage of the group`s total balance sheet profit. Whether or not attribution on these bases is accepted ultimately depends on the facts and circumstances surrounding each group`s tax position as well as ATO laws, regulations and guidelines relating to tax-sharing agreements in general. .