ACCA Advanced Taxation (ATX) Practice Exam

How do group payment arrangements benefit associated companies?

1. By allowing joint accounts for taxes

2. By simplifying tax reporting for all members

3. By avoiding separate calculations for large companies

4. By allowing shared benefits in compliance

The correct answer is: By simplifying tax reporting for all members

Group payment arrangements benefit associated companies primarily by simplifying tax reporting for all members within the group. This mechanism allows a group of companies, often linked by common ownership or control, to consolidate their tax obligations into a single payment arrangement. This not only streamlines the process of reporting taxes but also reduces the administrative burden on each individual company within the group. Through this arrangement, the group as a whole can benefit from economies of scale in terms of compliance and reporting, making it easier to manage financial details and ensuring that tax liabilities are calculated and reported efficiently. It minimizes the complexity that can arise when multiple entities engage in separate tax reporting and payment processes. While joint accounts for taxes and the avoidance of separate calculations for large companies are related concepts, they do not capture the primary advantage of grouping arrangements, which is the ease and efficiency of tax reporting across the entities involved. Similarly, while sharing benefits in compliance is advantageous, the essence of group payment arrangements lies more significantly in their capability to simplify tax reporting for all members, making option B the most comprehensive answer.