Consolidated tax
What are the issues facing groups?
Article written by Victor Arnaud
Senior Manager Consolidation & Reporting, Primexis
Consolidated tax is a major issue for many groups, as it includes current and deferred taxes arising from all subsidiaries. In accordance with international standard IAS 12, groups are required to present detailed tax information on both the balance sheet and the income statement, in their consolidated financial statements.
What are the groups’ issues?
Calculating deferred taxes, monitoring the related bases, and managing repayment schedules provide an overall view of taxation at group level. An in-depth understanding of deferred taxes and the tax results of the various subsidiaries is essential for producing the Group’s tax proof and managing the Effective Tax Rate (ETR).
The integration of this data into consolidation tools, via tax packages, is an important element in optimizing consolidated tax analysis. In addition, the ATAD directive limiting the deduction of financial charges, and above all the forthcoming application of Pillar 2 (which provides for a minimum tax rate of 15%), add further complexity to this already dense environment.
These issues require in-depth expertise, for which the groups regularly call in specialist firms.
Feedback on a Primexis customer support project
4 areas of application
1. Training on the new Tax Package
At the time of the half-year closing, the new tax package implemented by the Group revealed some difficulties in terms of appropriation by internal teams. We were asked to analyze the situation, review the process and propose adjustments. This analysis highlighted the need for specific support in training contributors.
Our team organized training sessions on the tax package for the subsidiaries. The aim was to ensure a consistent and in-depth understanding of the newly adopted procedures, while guaranteeing the quality of the data collected.
2. Control optimization
Our team reviewed the functional specifications, in response to consistency checks on the tax package requiring adjustments. Our consultants liaised with the prime contractor for the parameterization and carried out the functional acceptance test.
This intervention not only enabled us to redefine the controls for improved data consistency, but also optimized the process for the future.
3. Integration of new subsidiaries
The acquisition of 50 subsidiaries during the year added to the complexity of implementing the new tax package.
Our consultants made the necessary adjustments to the tax cut-off, a critical step in ensuring compliance and validation of the consolidated tax. This involved a detailed review of the subsidiaries’ tax results, which were then adjusted to reflect the integration period (the period between the date of entry of the acquired subsidiaries and the closing date).
At the same time, they played an active role in training new entities in the specifics of the tax package, with the aim of ensuring continuity in reporting.
4. Bridge between tax and IFRS consolidated financial statements
The tax manager’s mission is to optimize and determine the right tax charge for the whole group. The consolidator’s task is to calculate deferred taxes and justify the consolidated tax charge.
In recent years, many tax and reporting regulations have been based on the consolidated financial statements (Atad, CBCR, Pillar 2), necessitating close collaboration between these two professions.
As part of their mission, our consultants aimed to encourage interaction between tax specialists and consolidators, to improve mutual understanding of tax issues.
For this consolidated tax project, our detailed analysis and tailored training enabled us to harmonize the Group’s procedures with the new Tax Package requirements. By optimizing controls and facilitating collaboration between the tax department and the consolidation team, we not only enhanced the accuracy of tax reporting, but also contributed to better management of deferred taxes.
Fayda Tang
Supervisor at Primexis
Our work for this Group is a perfect illustration of Primexis’ ability to master the complexities of consolidated taxation, thus guaranteeing the reliability of consolidated financial statements.
Our expertise in consolidation and IFRS standards, and our in-depth understanding of the issues involved, have enabled us to offer our clients a comprehensive range of services.
