On June 28, 2010, the Tax Law Act (2010 GST Administration Measures No. 2) Act 2010 (Cth) (the Law) (the Act) (the Act) was passed with Royal Approval (1).1 The Act sets out the legal framework for companies that are members of a GST group or a GST joint venture to enter into an indirect tax-sharing agreement (ITSA). At the end of the day, the question is whether there is a reasonable assignment that is left to the courts. In the McGrath-Ors case as liquidator of HIH Insurance Ltd  NSWSC 1244, Justice Barrett of the Nsw Supreme Court addressed the issue of adequacy in the context of a tax participation agreement. His honour has been highlighted: as noted above, the validity of an AIC is one of the conditions for the amount of the contribution to be, for each contributing member, an appropriate allocation of the total amount payable for an indirect tax debt. As with ASD, the term “appropriate allocation” is not defined in the legislation. In the explanatory statement for amending the tax legislation (2010 GST Administration Measures No. 2) Bill 2010 (EM), it is proposed that members should not limit themselves to applying a method that assigns each member the amounts of liability for each indirect tax right, although it may do so if they wish, provided that the distribution of overall responsibility is appropriate. Tax financing agreements complement tax-sharing agreements and explain how subsidiaries finance the payment of tax by the main company and when the main company is required to make payments to subsidiaries for certain tax attributes generated by subsidiaries that benefit the group as a whole (for example. B tax losses and tax credits). If your client has entered these agreements, has the client also brought in or removed members of the group? It is important that all member organizations are parties to the agreements. Please call a member of our team if you need help.
Business groups are encouraged to consider entering into tax-sharing and tax financing agreements as part of their entry into the tax consolidation system. Under the new international financial reporting standards, tax groups must ensure that they have a tax financing agreement that uses an “acceptable allocation method” under the “Urgent Questions” (UIG) group Interpretation 1052 Tax Consolidation Accounting. If the tax financing agreement does not use an “acceptable allocation method,” group members may be required to account for dividends and capital distributions or capital contributions in their accounts. If they join the tax consolidation system, business groups need to think about how best to minimize the application of joint and several liability related to group income taxes.