Accounting treatment of corporate tax liability for group corporate taxpayers

March 31, 2020

In this article, we would like to explain how corporate tax group members should account for corporate tax liability in a group corporate taxpayer. As the legal entity of a group corporate taxpayer is known to have been introduced as of January 1, 2019, it may be important to consider the following when calculating the current corporate tax liability.

First of all, it is important to emphasize that in case of group tax liability, there is a designated group representative who represents the group to the tax authority and this also means that only the group representative submits corporate tax returns on behalf of the group, namely until 31st May 2020 (more precisely because the deadline falls on the weekend and June 1, 2020 is Pentecost Monday, the first working day thereafter, ie June 2).

In practice, this will result in the group having only one tax account for the corporate tax, where the tax liability of the group and its financial settlement are also recorded. Of course, each group member must prepare their own tax calculations (but it is important that they do not have book it just to declare it to the group representative), from which the group calculates the group tax base and the group-level corporate tax from which they will be subject to the tax liability and each group member will report this 'redistributed' tax in the 'Tax liability' line of the income statement and balance sheet. At this point, the interesting question arises as to who will show what in the books. Since the group representative reports, declares and pays the full corporate tax liability to the tax authority, it has to be transferred to the receivable against the affiliated company, in other words the group members. Otherwise, it would remain in the balance sheet of the group representative as an overpayment to the tax authority (ie the balance account would show a balance that could not be reconciled with the tax account at the time of reconciliation).

On the other hand, the opposite will happen, ie the group member will show the corporate income tax liability on it, but since the group member will never pay the corporate income tax due to the tax authority, it has to be transferred to the obligation to the group representative (the obligation to the affiliated company). Of course, financially, the receivables / liabilities have to be settled towards each other in order for these balances to run to zero for each member.

If our article proves useful and if you have any further questions, feel free to contact our experts.

Made by: Zoltán Pályi, Partner of Ecovis Tax Solution