Abstract
The paper discusses the availability tax grouping among EU countries as well as benefits and costs of this tax incentive. Article focuses on Poland, where real usage of this tax management tool is analysed. Grounds for its (low) popularity are investigated. Analysis was made primarily based on observation of values and time trends build on data published by Polish Ministry of Finance, Statistical Yearbooks, PwC reports and Eurostat. Although tax grouping for corporate income tax purposes is offered by half of EU Member States, Poland is the only CEE country that offers this tax allowance. However, Polish corporations rarely use it in practice. Reasons include elevated entry requirements, lack of VAT grouping, low corporate income tax rate, lack of additional withholding tax benefits, no possibility of tax losses utilization, profitability requirements or retroactive duties in case of losing a status of a tax group. Those obstacles seem to outweigh the benefits of higher net return on capital, decreased transfer pricing requirements, higher liquidity and limited tax compliance burden. Those limited gains are prized primarily by biggest Polish entities, which indeed use tax grouping. The novelty and value of this paper lies in analysis of important topic from practical perspective, which was not thoroughly verified before both in Poland but also in other jurisdictions. It may also serve as a hint for managers considering entrance in a tax group and policymakers, while amending tax law regulations.
Highlights
Tax systems are of national character and vary among EU Member States
Alternative scheme assumes group taxation. This solution is known for a century, to date only some jurisdictions allow for tax grouping for corporate income tax purposes
In case of EU twelve countries allow for consolidation of income. This means that only companies with are located in those jurisdictions may choose the preferred way of taxation
Summary
Tax systems are of national character and vary among EU Member States. every single country belonging to this community imposes tax on profits of corporations. This solution is known for a century (when consolidation schemes were introduced in 1917 in US and later after World War I in Germany), to date only some jurisdictions allow for tax grouping for corporate income tax purposes (hereinafter: “CIT”). According to this latter idea income tax is paid by a body consisting of several related companies. I analyse the advantages and disadvantages of tax grouping from the prospective of shareholders This is followed by overview of fiscal consolidation possibilities in EU Member States and discussion on the potential reasons for existence of tax grouping in particular countries. Factors that may influence decision to form a tax group are discussed and conclusions are made
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