Tax Analysts provides news, analysis, and commentary on combined reporting, which is a requirement of some taxing authorities that a business with commonly owned entities spread across multiple taxing jurisdictions report on their corporate tax returns the income and expenses of the combined group rather than each separate entity.
More countries, states, and localities are abandoning separate accounting in favor of combined reporting, also referred to as unitary accounting or mandatory unitary combined reporting (MUCR), because it arguably makes it harder for a group of related entities to use intercompany transactions, transfer pricing, or other tax planning strategies to shift income outside of a taxing jurisdiction. Formulary apportionment would require combined reporting.
Combined reporting is theoretically an efficient way for commonly owned entities to report their income given that the group may already prepare consolidated financial statements in accordance with financial reporting standards, generally either U.S. generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS), or file combined returns, for instance under the consolidated return rules.
However combined reporting doesn’t necessarily reduce the compliance burden on taxpayers because jurisdictions don’t always enact the same rules. For example, some jurisdictions consider the unitary tax group to be all commonly owned entities worldwide while others limit it to those entities within a smaller geographic area like water’s edge.
