Question

What are more some of the challenges faced by the accountant for tax purposes regarding consolidated entities?

Answer 1

As a consolidated company disregards any legal existence of separate entities or affiliates, they are then combining the basis of their operations and thus combine the different tax structures. One of the advantages of filling consolidated tax returns are being able to centralize the reporting, and paying of the taxes.There are four steps that must be taken when taxes are filed by the parent company, the first step is that the determination of taxable income, gains, deductions, and losses; then each subsidiary must account for all intercompany transaction; and then they must determine which items listed in the net income or losses will be included or excluded; and finally, the separations of all subsidiary incomes are totaled and consolidated.

Yet there are certain challanges that the accountant might face due to the complex structure and the bulk of work required to be done while preparing accounts of consolidated entities, specially regarding the tax to be paid.

.Some of the disadvantages are the accumulated profits and earnings often are limiting the amount of tax credits that can be used, the tracking of intercompany transactions must be recorded for years to come, and any income recognition from deferred transaction, possibly are then considered losses. There are other options with regards to filing taxes, it is often that combined entities will continue to file separate taxes, in order to maintain separate affiliations, although they are consolidations, they will often utilize the benefits of remaining separate instead of combined. As it is with any combined entities, the subjection of tax audits would be the basis of combining the taxes of the two; although smaller companies are often less likely to be subjected to tax audits, they are also less experienced with tax examinations.