Countries applying group taxation systems

  • 198. Where a country taxes entities on a group or consolidated basis, the fixed ratio rule and group ratio rule may be applied in any of the following ways at the discretion of the country:
    • • The country may treat entities within the consolidated tax group as a single entity for the purposes of applying the fixed ratio rule and group ratio rule. For example, the benchmark fixed ratio would be applied to the consolidated tax group’s total tax-EBITDA, and the amount of interest capacity applied to calculate the permitted net interest deductions for the consolidated tax group as a whole. Under this option, entities which are in the same financial reporting group, but which are not part of the same consolidated tax group, would continue to be treated as separate entities and would apply the fixed ratio rule and group ratio rule independently.
    • • The country may treat all entities in the country which are part of the same financial reporting group as a single entity for the purposes of applying the fixed ratio rule and group ratio rule. Transactions within the financial reporting group which do not net off may be excluded from "entity EBITDA" to prevent abuse. This option may be particularly relevant for a country with a group ratio rule, which applies to entities in a financial reporting group. However, as this could in effect allow the transfer of interest capacity between a consolidated tax group and an entity outside of that group, the country may need to consider whether this raises any policy concerns. The operation of other provisions such as carry forwards and carry backs would need to be considered, for example whether an entity should be able to benefit from attributes carried forward from a period before it joined the financial reporting group.
 
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