Possibility to deduct losses by a member of tax capital group
After the expiry of the term of a tax capital group agreement or after the loss of the status of a tax capital group, member entities of such group have the right to deduct losses incurred before the group was created, in the nearest consecutive five years – such confirmation was given by the Director of Fiscal Chamber in Katowice in an individual binding ruling of 13 April 2016, ref. no. IBPB-1-1/4510-49/16/BK.
The most important advantage of a tax capital group is the possibility for those of its member companies which generate income to deduct tax losses incurred by other group member companies, already in the year in which such loss is incurred. In the case of a tax capital group losses and incomes of its members are summed up and the result makes the taxable income. The taxpayer liable to income tax is in such case a tax capital group, not its members separately. Benefits may be also seen in the possibility to “transfer” income between member companies of a tax capital group (the provisions on income assessment in the case of transfer of incomes do not apply to performance between member entities of a capital group), as well as lack of a 19% lump sum tax on dividends and other revenue from profit sharing in subsidiaries creating a tax capital group, or finally simplification and facilitation of tax settlements (tax returns and declarations are filed only by one entity). At the same time, the creation of a tax capital group has certain drawbacks – the legislator has provided for a number of restrictions connected with the establishment and operation of such group. We should note here first of all a period of minimum three years of existence (i.e. the requirements for the operation of tax capital groups must be satisfied over that period) or a requirement to achieve a share of the group’s income in its revenue of at least 3% for each year. What is more, member companies of a tax capital group are jointly and severally liable for the group’s CIT liabilities. A decision to create a tax capital group should also take into account the fact that it is not possible to deduct tax losses incurred by group member entities before the establishment of the tax capital group from the income of the group. So the companies which recorded losses before entering the structure of the group lose the right to deduct such losses – nevertheless, this loss may be only temporary, which was confirmed by the tax authority in the above binding ruling.
The applicant had doubts whether it will be entitled to deduct tax losses incurred before the establishment of a tax capital group also after the group ceases to operate. The tax authority confirmed that, for the purpose of loss deduction, the nearest consecutive tax years should be understood as the company’s tax year directly preceding the beginning of the first tax year adopted by the tax capital group, and the company’s tax year commencing on the day following the day on which the tax capital group has lost its status or its term has expired. So during the term of the tax capital group only the tax years of the group are counted, while the tax years of its individual members are in a way suspended. Following the registration of a tax capital group agreement, a new taxpayer comes into existence, whereas member companies of such group cease to exist as separate taxpayers for the purpose of CIT. So a decision on entering a tax capital group does not exclude the possibility to deduct losses incurred previously in the future, which may be another incentive for considering the creation of such group.