Article 42 – Case Scenarios – Taxable Income of a Tax Group
State the conditions to be fulfilled for creating the tax group having a parent company to represent the tax group and with other 5 subsidiaries to form the part of it. Explain the criteria to fulfill for the same.
Solution:- As per the Article – 40, the clause 1 prescribes for the following criteria must be fulfilled, in order to create a tax group which will be later represent by the Parent company, the conditions for the same are as follows:-
- Resident Person are Juridical Person
- Parent company owns at-least 95% of:-
- share Capital; and
- voting power; and
- Profits and Net Assets,
in the subsidiary company, , either directly or indirectly through one or more subsidiary
- Neither the Parent nor Subsidiary company covered under:-
- the Exempt Person
- Qualifying Free zone Person
- Both the parent and subsidiary company:-
- Having the same financial year
- Using the same accounting standards
A Inc. was a member of a Tax group, wherein, P Inc. a holding company was representing the tax group. There are some unutilized losses of the tax group amounting to 5 lakhs AED which includes 25k AED of A Inc, which is unutilized till now. At present, A Inc wants to leave the tax group, suggest the treatment of unutilized losses as mentioned.
Solution:- As per the provisions of Article 42, the unutilized losses as pertaining to the A Inc, shall not remain the part of the Tax group and no longer be able to set off the profits of the tax group. As, at the time, the A Inc, will leave the group, the portion of unutilized losses of A Inc, pertaining to the period of Pre-grouping, i.e., 25k AED shall not remain the part of the tax group and cannot be set off against the profits of tax group, after the leaving of Tax group by A Inc.
