A tax sharing agreement is created between the members of a consolidated company where every member of the consolidation takes responsibility of sharing a preset tax liability not paid by the chief of the consolidated group. Such an agreement helps in tax savings when the head of the consolidation is in a country that has a high corporate income tax rate and the subsidiaries are in countries with lower rates. The subsidiaries can be protected from being charged a higher rate of interest.
All the companies in a tax sharing agreement must calculate and show their taxes as a separate entity. Such an agreement helps in case of an AMT or Alternative Minimum Tax. A subsidiary member of the consolidation group may have to pay higher taxes because of AMT and in such a case, a tax sharing agreement will help the subsidiary as the difference between the AMT liability and the usual consolidation tax liability will be shared between all the members.
Sample Tax Sharing Agreement
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