ACCA Advanced Taxation (ATX) Practice Exam

Members of a group of companies are generally treated as what?

1. Separate entities for tax purposes

2. A single entity for tax purposes

3. Independent businesses with no relation

4. Individual partners in a partnership

The correct answer is: A single entity for tax purposes

Members of a group of companies are generally treated as a single entity for tax purposes, particularly when it comes to corporation tax in many jurisdictions. This treatment allows the group to offset profits and losses among its members, which can lead to significant tax efficiencies. When a group elects to be treated as a single entity, it can consolidate its tax liabilities and minimize payments by utilizing losses incurred by one member to offset profits earned by another. This tax consolidation approach can be particularly beneficial in reducing the overall tax burden of the group, encouraging corporate structure and operational efficiencies. Other options, such as being treated as separate entities or independent businesses, do not facilitate the same level of tax efficiency or the strategic planning advantages that come with consolidating under a single entity approach. In a tax context, being viewed as individual partners in a partnership also fails to apply, as companies operate under corporate law rather than partnership law. Thus, the classification of group members as a single entity reflects both legislative intent and practical benefits in tax planning.