A tax sharing agreement is a legally binding agreement on the basis the tax liabilities of a parent company are distributed between the various group companies. In other words a tax sharing agreement is an instrument used to determine the taxation liabilities for the various subsidiaries and group companies of a large corporation.
This agreement is enacted between the various group constituents and consists of important clauses such as the business activities of the respective group companies, the revenue generated during the period in question, the impact of the revenue of the group company on the overall taxation liabilities of the group, the proportion of tax liability of the group constituent, the mode of payment of tax and date of tax payments. It also specifies the penalties the company would have to face in case of default. It is very essential that this type of agreement is drafted by qualified and experienced tax consultant in order to avoid any major embarrassment to the group company from government authorities.
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