Another important tax deadline is approaching for calendar year taxpayers. And in this case, the plural number is relevant not because this deadline may be important for any taxpayer, but primarily for taxpayers who belong to a group of companies and meet the following conditions:
- operate in the organisational form defined under the corporate tax law;
- are not simply related, but are so closely connected that one group member/prospective group member holds at least 75 per cent of the voting rights in the other group member/prospective group member or another person holds at least 75 per cent of the voting rights in the group members/prospective group members;
- they have the same balance sheet date or the same reporting/accounting rules.
Companies meeting the above criteria may opt group taxation for corporate income tax purposes. The deadline for making the choice is 1-20 November. The deadline is statute-barred and no request for extension of deadline can be made, so taxpayers who are considering opting for group taxation should consider as soon as possible whether it is worthwhile for the group or some of its members to make use of this option.
Group taxation is authorized by the tax authority (NAV) at the request of the members. The group tax status will be established from the first day of the year following the application, i.e. for applications submitted between 1 November 2021 and 20 November 2021, the group tax status will be established from 1 January 2022. There is no right of appeal against the authorisation decision, so if the NAV has approved it, members cannot decide afterwards that the group tax entity will not be created. It is also possible to join a group taxpayer afterwards or, in addition to the mandatory termination cases, to request the termination of the group tax status. In these cases, permission from the NAV is also required.
The question may arise as to what group taxation is good for. The obvious answer would be that it simplifies administration and equalises the tax burden between profitable and loss-making businesses. This is true, but the situation is a little more nuanced than that.
The tax base, and therefore the tax liability, is not simply determined by adding up (netting) the individual tax bases. Each group member must continue to determine its tax base individually, on the basis of which the group representative, taking into account the special rules applicable to group taxpayers, prepares the group tax base and tax return to be submitted to the tax authorities. Group members are therefore not required to prepare and submit a tax return, but they must prepare an individual tax assessment. When determining the group tax base, special rules should be taken into account, such as loss write-off rules, certain discount rules, interest deduction limit rules.
As a general rule, transfer pricing rules do not need to be applied for transactions between group members. Tax relief is also available for group taxpayers. Overall, group tax residence can have the advantages of a more balanced tax burden for the group, tax savings at group level, the possibility to better benefit from tax advantages and, in some respects, reduced administration.
Babett Dr. Korponai, manager director, partner, advisor
