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In addition, if a member enters or leaves the group, certain adjustments to earnings and profits, basis, and other tax attributes apply.
Several countries allow related groups of corporations to compute income tax on a consolidated basis, in a manner similar to consolidation for financial reporting purposes.
Tax consolidation, or combined reporting, is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes.
This generally means that the head entity of the group is responsible for all or most of the group's tax obligations (such as paying tax and lodging tax returns).
Consolidation is usually an all-or-nothing event: once the decision to consolidate has been made, companies are irrevocably bound.
Only by having less than a 100% interest in a subsidiary can that subsidiary be left out of the consolidation.
Each member of a group must recognize gain or loss on disposition of its shares of other members.
In such systems, consolidating eliminations of income and expense are taken into account.
The Netherlands system allows a group of Netherlands resident corporations and branches of foreign corporations to elect to be taxed as a Fiscal Unity.
Such gain or loss is affected by the member's basis in such shares.
Basis must be adjusted for several items, including taxable income or loss recognized by the other member, distributions, and certain other items. Additional adjustments apply in the case of intra-group reorganizations or acquisition of the common parent, and upon entry to or exit from the group by a member.
The aim of a tax consolidation regime is to reduce administrative costs for government revenue departments and reduce compliance costs for corporate taxpayers.