Controlled corporate groups are subject to special tax sharing rules, but they only apply if each corporation of the group files its own separate Form 1120, U. The tax code defines an affiliated group as one in which there is a parent corporation that owns at least 80% of both the voting power and the value of the stock of another corporation and the affiliated group includes all other corporations in which 80% of both the voting power and the value of their stock is owned collectively by other members of the group.
The affiliated group can only consist of includable corporations, which the tax code defines negatively as being corporations that are not tax-exempt or foreign, and are not life insurance companies, regulated investment companies, real estate investment trusts, or S corporations.
So even if a corporate group must file a consolidated financial accounting report does not necessarily qualify it for filing a consolidated tax return.
When a consolidated return for a group is 1 filed, consent by all of the corporations within the group is required, which subsidiaries do by filing Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return and attaching it to their group's Form 1120.
Now the CA, 2013 mandates every Listed, unlisted public and private limited companies to prepare consolidated financial statements which are having subsidiary companies as defined under Section 2(8 7) of the Companies Act, 2013, which includes Associate Company and Joint Venture (Both in India and Abroad).
Additional Disclosures: The Company in addition to the financial statements shall also attach a separate statement containing the salient features of the financial statements of the subsidiaries.
Forming a subsidiary also can provide tax benefits at the state level.IRC §1501 allows, but does not require, an affiliated group of corporations to file a consolidated income tax return for the group.Consolidated corporate returns have been allowed since 1918, in recognition of the fact that although many businesses achieve some of their objectives with multiple legal entities, the tax code recognizes that the business entity is singular.There are several advantages to filing a consolidated tax return, such as being able to centralize the planning, reporting, and paying of the tax, but once the choice is made to file consolidated returns, then the group must continue to do so thereafter.Although a group that has chosen the consolidated filing option can ask the IRS to discontinue the consolidated filing, the IRS rarely grants such permission, although at times it may grant blanket permission to numerous taxpayers within a certain industry where changes in the tax code may adversely affect their consolidated returns. However, if the business entities file a consolidated Form 1120, then the controlled corporate group tax rules do not apply.