Benefits consolidating subsidiaries
The appellate court affirmed, based in principal part on the employee’s conduct in ignoring the seemingly obvious mistake.
Not surprisingly, the Court did not ascribe much credence to the employee’s affidavit, in which he stated his belief that severance pay in excess of thousand per week was “fair based on my 28 years of service.” The case highlights the importance of proofreading legal documents for easily avoidable drafting errors.
These insurance subsidiaries or affiliates were often domiciled offshore, especially in Bermuda or the Cayman Islands.
The risk management benefits of these captives were primary, but their tax advantages were also important.
Assets can be transferred between group companies without triggering a tax on gain for the company receiving assets, dividends can be paid between group companies without incurring tax liabilities, and tax attributes of one group company such as imputation credits can be used by other companies in the group.
In some jurisdictions there may be other benefits, such as the ability to look through the acquisition of shares of acquired companies to depreciate the underlying assets.
The aim of a tax consolidation regime is to reduce administrative costs for government revenue departments and reduce compliance costs for corporate taxpayers.
This allows an investor to check the overall health of the company in a holistic manner rather than viewing the individual company's financial statements separately.Because the benefits of “pure captives” are much more significant, this article is limited to discussing that type of entity (see the sidebar “Case Study” for an example of situations in which it may be advantageous for a small business to set up a captive insurance company). In Risk distribution occurs when particular risks are combined in a pool with other, independently insured risks. 2002-75 the IRS stated that it would begin to issue private letter rulings on specific companies’ risk distribution and risk shifting and whether the captives are true insurance companies.IDEAL CANDIDATES FOR CAPTIVES The use of a captive should be considered for entities that meet the following criteria: INSURANCE REQUIREMENTS For the premium payment to the captive to be deductible as an insurance expense, the captive must be able to prove that it is a valid insurance company (payments for self-insurance generally are not deductible (, 9 B. By increasing the total number of independent, randomly occurring risks that a corporation faces (i.e., by placing risks in a larger pool), the corporation benefits from the mathematical concept of the law of large numbers in that the ratio of actual to expected losses tends to approach one. There is one additional requirement for the captive to be considered an insurance company for federal purposes.Tax consolidation, or combined reporting, is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes.This generally means that the head entity of the group is responsible for all or most of the group's tax obligations (such as paying tax and lodging tax returns).