Consolidation : Transfer of fixed asset within the group

[mayes89]

Hi,

I would like to seek advise whether there is a deferred tax asset arising from the transfer of fixed asset where the seller sold the fixed asset at a gain on consolidation. This is assuming that the tax base of the asset remains unchanged on transfer.

Am i correct to say that from individual entity perspective it would have make a gain on sale of PPE. As the gain is taxable amount will be payable by the individual entity. However, from the group’s perspective, no gain has been made which means the related tax expense must be reversed and a related deferred tax benefit is recognised. A deferred tax asset is recognised because, from the group’s perspective, the amount paid to tax authority represents a prepayment of tax.

Thanks for help!

 

[kirby]

One of the steps in preparing a consolidated report is to eliminate intercompany transactions and related intercompany gains and losses.

You said on the group perspective no gain has been made. Therefore you would also eliminate the related tax expense.

There are exceptions. For example, if subsidiary A is chartered in one country and subject to its tax laws and Sub A makes a gain on a transaction with subsidiary B which is chartered in another country. Then you could not file a consolidated tax return where the events in A and B negate each other and sub A would have to pay a tax.