Group Aggregation System
Preliminary investigation for the application of the group aggregation system
The group aggregation system will come into effect for fiscal years beginning on or after 1 April 2022. Our experienced professionals at Deloitte Tohmatsu Tax Co. offer high quality services to help clients determine whether to apply group aggregation.
What is group aggregation?
Outline of group aggregation
The group aggregation system, which will replace the current tax consolidation system, will come into effect for fiscal years beginning on or after 1 April 2022. Group aggregation will allow for the aggregation of profits and losses within a group, similar to the tax consolidation system, but it includes several significant variations from tax consolidation. For example, the scope of the mark-to-market (“MTM”) valuation and net operating loss (“NOL”) forfeiture rules applied at the time of commencement/joining an aggregated group will be reduced to align with the corporate reorganization rules.
Companies currently in tax consolidation
Japan group companies currently in tax consolidation will automatically roll into group aggregation unless they opt out, so group companies will need to decide whether to roll into or opt out of the group aggregation system. While it is expected that most groups would not opt out, as they can continue to enjoy the benefits of offsetting group profits and losses, the tax treatment of certain transactions (e.g., selling shares of a subsidiary outside of the group) may differ depending on whether they are implemented under the tax consolidation system, the group aggregation system, or on a stand-alone basis.
Companies not currently in tax consolidation
Japan group companies not currently in tax consolidation may want to consider applying for group aggregation, particularly if the group has loss-making entities. Japan group companies interested in applying group aggregation should consider whether there is any benefit to entering into tax consolidation and automatically rolling over into the group aggregation system versus waiting to elect into the group aggregation system directly.
Preliminary Investigation Services
Through our preliminary investigation services, Deloitte Tohmatsu Tax Co. will assist clients in determining whether to apply group aggregation. The services are intended to assist companies with identifying the relevant material issues to help determine whether further analysis is warranted, and if so, to determine directionally where such analysis should be focused based on the specific circumstances and attributes of the Japan group companies.