Tax Sharing Agreements
Corporations consolidate into groups to gain tax advantages. Tax sharing agreements permit each member company to assume a predetermined portion of any tax liability not paid by the head company in the consolidated group.
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Tax Savings
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Consolidated companies often have divisions in different parts of the world. The head company may be established in a country with a high corporate income tax rate and the subsidiary companies in nations with lower tax rates. According to Northwestern University, entering into a tax cost-sharing agreement can protect the subsidiary company from being subject to the higher tax rate.
Computing Tax Liability
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Agencies of the United States government set policy to regulate corporate tax sharing agreements. Under a tax sharing agreement, each subsidiary company must compute income taxes as a separate entity.
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Alternative Minimum Tax Liability
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A subsidiary company in a consolidated group can incur a higher tax debt because of the Alternative Minimum Tax (AMT). In this circumstance, the difference between the AMT tax liability and regular consolidated tax liability will be shared by the members of the group.
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