Can losses be transferred between group companies?

Article 42 – Taxable Income of a Tax Group 1. For the purposes of determining the Taxable Income of a Tax Group, the Parent Company shall consolidate the financial results, assets and liabilities of each Subsidiary for the relevant Tax Period, eliminating transactions between the Parent Company and each Subsidiary that is a member of the Tax Group. 2. The relevant provisions of this Decree-Law shall apply as the context requires to the Tax Group. 3. Unutilised Tax Losses of a Subsidiary that joins a Tax Group (referred to in this Article as “pre-Grouping Tax Losses”) shall become carried forward Tax Losses of the Tax Group, and can be used to offset the Taxable Income of the Tax Group insofar this income is attributable to the relevant Subsidiary. 4. Where a new Subsidiary joins an existing Tax Group, unutilised Tax Losses of the existing Tax Group cannot be used to offset the Taxable Income of the Tax Group insofar this income is attributable to the new Subsidiary. 5. The application of Clauses 3 and 4 of this Article is subject to the conditions of Articles 37 and 39 of this Decree-Law. 6. Where a Subsidiary leaves a Tax Group, Tax Losses of the Tax Group shall remain with the Tax Group, with the exception of any unutilised pre-Grouping Tax Losses of the relevant Subsidiary. 7. On cessation of a Tax Group, unutilised Tax Losses of the Tax Group shall be allocated as follows: a. Where the Parent Company continues to be a Taxable Person, all Tax Losses shall remain with the Parent Company. b. Where the Parent Company ceases to be a Taxable Person, Tax Losses of the Tax Group shall not be available for offset against future Taxable Income of individual Subsidiaries, with the exception of any unutilised pre-Grouping Tax Losses of such Subsidiaries. 8. Paragraph (b) of Clause 7 of this Article shall not apply where there is a continuation of the Tax Group under Clause 12 of Article 40 of this Decree-Law. 9. Clause 1 of this Article shall not apply where an asset or liability has been transferred between members of the Tax Group and either the transferor or transferee leaves the Tax Group within (2) two years from the date of the transfer, Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 49 unless the associated income would have been exempt from Corporate Tax or not taken into account under any other provisions of this Decree-Law. 10. Any income that was not taken into account with regards to a transfer described in Clause 9 of this Article shall be taken into account on the date the transferor or transferee leaves the Tax Group, and shall result in a corresponding adjustment of the cost base for Corporate Tax purposes of the relevant asset or liability. 11. The Tax Group must prepare consolidated financial statements in accordance with accounting standards applied in the State. Chapter Thirteen – Calculation of Corporate Tax Payable

Article 38 – Transfer of Tax Loss 1. A Tax Loss or a portion thereof may be offset against the Taxable Income of another Taxable Person where all of the following conditions are met: a. Both Taxable Persons are juridical persons. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 44 b. Both Taxable Persons are Resident Persons. c. Either Taxable Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in the other, or a third Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons. d. The common ownership under paragraph (c) of Clause 1 of this Article must exist from the start of the Tax Period in which the Tax Loss is incurred to the end of the Tax Period in which the other Taxable Person offsets the Tax Loss transferred against its Taxable Income. e. None of the Persons are an Exempt Person. f. None of the Persons are a Qualifying Free Zone Person. g. The Financial Year of each of the Taxable Persons ends on the same date. h. Both Taxable Persons prepare their financial statements using the same accounting standards. 2. Where a Taxable Person transfers its Tax Loss to another Taxable Person under Clause 1 of this Article: a. the Taxable Person which the Tax Loss is transferred to shall reduce its Taxable Income for the relevant Tax Period; b. the total Tax Loss offset shall not exceed the amount allowed under Clause 2 of Article 37 of this Decree-Law; and c. the Taxable Person shall reduce its available Tax Losses by the amount of the Tax Loss transferred to the other Taxable Person for the relevant Tax Period.

Article 7 – Relief for Pre-Grouping Tax Losses 1. For the purposes of Clause (3) of Article (42) of the Corporate Tax Law, the amount of the pre-Grouping Tax Losses of a Subsidiary that can be used to offset the Taxable Income of the Tax Group in a Tax Period shall be the lesser of the following two amounts: a. The Taxable Income of the Tax Group that is attributable to that Subsidiary. b. The Tax Loss that can be used to reduce the Taxable Income of the Tax Group in the relevant Tax Period under Clause (2) of Article (37) of the Corporate Tax Law. 2. Where the calculation of the Taxable Income of a Tax Group, as specified under Clause (1) of Article (42) of the Corporate Tax Law, resulted in a Tax Loss and became a carried forward Tax Loss, any pre-Grouping Tax Losses available to be utilised in a subsequent Tax Period must be offset against the Taxable Income of the Tax Group in that Tax Period in accordance with Clause (1) of this Article before the other carried forward Tax Losses of the Tax Group can be utilised in that same Tax Period, subject to the provisions of Article (37) of the Corporate Tax Law. 3. Where the total pre-Grouping Tax Losses available to be utilised in a Tax Period Ministerial Decision No. 301 of 2024 – As published by the Ministry of Finance 4 exceed the amount specified under Clause (1) of this Article, the Parent Company must determine which Subsidiary’s pre-Grouping Tax Losses remain carried forward Tax Losses of the Tax Group. 4. The provisions of Clause (4) of Article (37) of the Corporate Tax Law shall also apply to pre-Grouping Tax Losses.

If a Tax Group ceases to exist and the Parent Company continues to be a Taxable Person, any Tax Losses of a Tax Group will become Tax Losses of the Parent Company. 263 If the Parent Company ceases to exist or it ceases to be a Taxable Person, the Tax Losses of the Tax Group will not be available for utilisation except if the Parent Company is replaced where Article 40(12) of the Corporate Tax Law applies. 264 Any pre-Grouping Tax Losses will become Tax Losses of the relevant Subsidiary and will be available for future utilisation, if the Subsidiary continues to exist. Where Article 40(12) of the Corporate Tax Law applies, a Parent Company can be replaced by another Parent Company without discontinuing the Tax Group. In this case, any unutilised Tax Losses of the Tax Group continue to be available as Tax Losses of the Tax Group.265 10.4. Transfer of Tax Losses The Tax Group is treated as a single Taxable Person.266 If the conditions of Article 38 of the Corporate Tax Law are met, the Tax Group can transfer a Tax Loss to another Taxable Person or another Tax Group. Similarly, if another Taxable Person or another Tax Group meets the relevant conditions under Article 38 of the Corporate Tax Law, it can transfer a Tax Loss to the Tax Group. A Tax Loss can be transferred from one Taxable Person to another Taxable Person only upon fulfilment of certain conditions. 267 One of the conditions is that either Taxable Person has a direct or indirect ownership interest of at least 75% in the other, or a third Person has a direct or indirect ownership interest of at least 75% in each of them. 268 As explained in Section 8.3.2, in case of Tax Groups, this condition is determined by aggregating all ownership interests held by members of the Tax Group. If a Tax Loss is transferred to the Tax Group, this can only be utilised after utilisation of any pre-Grouping Tax Losses, restricted Tax Group Tax Losses and other Tax Losses of the Tax Group.269 263 Article 42(7)(a) of the Corporate Tax Law. 264 Article 42(7)(b) and Article 42(8) of the Corporate Tax Law. 265 Article 42(8) of the Corporate Tax Law. 266 Article 40(4) of the Corporate Tax Law. 267 Article 38(1) of the Corporate Tax Law. 268 Article 38(1)(c) of the Corporate Tax Law. 269 Article 37(4) of the Corporate Tax Law. Corporate Tax Guide | Tax Groups | CTGTGR1 85