What are the benefits of forming a Tax Group?

3. What is a Tax Group? The Corporate Tax Law defines a Tax Group as two or more Taxable Persons treated as a single Taxable Person according to the conditions of Article 40 of the Corporate Tax Law. 1 Only Resident Persons can be part of a Tax Group. 2 A Tax Group for Corporate Tax purposes is distinct from a tax group for value added tax purposes. If the relevant conditions are met,3 a joint application can be made to the FTA by the Parent Company and each Subsidiary seeking to form or become a member of a Tax Group. 4 A member of a Tax Group may refer to either a Parent Company or a Subsidiary included in the relevant Tax Group. A Subsidiary can only be a member of a Tax Group if all conditions outlined in Article 40(1) of the Corporate Tax Law are met. There are several benefits of forming a Tax Group, which include the ability for the Parent Company to file a single Tax Return on behalf of all members of the Tax Group.5 Forming a Tax Group also allows for the income and losses of the members of the Tax Group to be offset against each other. Also, generally the transfer of assets and liabilities and other transactions and arrangements between members of the Tax Group are to be disregarded when determining the Taxable Income of the Tax Group. 1 Article 1 of the Corporate Tax Law. 2 Article 40(1) of the Corporate Tax Law. 3 Article 40(1) of the Corporate Tax Law. 4 Article 40(3) of the Corporate Tax Law. 5 Article 53(7) of the Corporate Tax Law. Corporate Tax Guide | Tax Groups | CTGTGR1 15

Article 40 – Tax Group 1. A Resident Person, which for the purposes of this Decree-Law shall be referred to as a “Parent Company”, can make an application to the Authority to form a Tax Group with one or more other Resident Persons, each referred to as a “Subsidiary” for the purposes of this Chapter, where all of the following conditions are met: a. The Resident Persons are juridical persons. b. The Parent Company owns at least 95% (ninety-five percent) of the share capital of the Subsidiary, either directly or indirectly through one or more Subsidiaries. c. The Parent Company holds at least 95% (ninety-five percent) of the voting rights in the Subsidiary, either directly or indirectly through one or more Subsidiaries. d. The Parent Company is entitled to at least 95% (ninety-five percent) of the Subsidiary's profits and net assets, either directly or indirectly through one or more Subsidiaries. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 46 e. Neither the Parent Company nor the Subsidiary is an Exempt Person. f. Neither the Parent Company nor the Subsidiary is a Qualifying Free Zone Person. g. The Parent Company and the Subsidiary have the same Financial Year. h. Both the Parent Company and the Subsidiary prepare their financial statements using the same accounting standards. 2. Notwithstanding paragraph (e) of Clause 1 of this Article, one or more Subsidiaries in which a Government Entity directly or indirectly owns at least a 95% (ninetyfive percent) ownership interest as specified in paragraphs (b), (c) and (d) of Clause 1 of this Article can form a Tax Group, subject to the conditions to be prescribed by the Authority. 3. An application made under Clause 1 of this Article shall be made to the Authority by the Parent Company and each Subsidiary seeking to become members of the Tax Group. 4. A Tax Group formed under Clause 1 of this Article is treated as a single Taxable Person for the purposes of this Decree-Law, represented by the Parent Company. 5. The Parent Company shall comply with all obligations set out in Chapters Fourteen, Sixteen and Seventeen of this Decree-Law on behalf of the Tax Group. 6. The Parent Company and each Subsidiary shall be jointly and severally liable for Corporate Tax Payable by the Tax Group for those Tax Periods when they are members of the Tax Group. 7. The joint and several liability under Clause 6 of this Article for a Tax Period can be limited to one or more members of the Tax Group following approval by the Authority. 8. The Parent Company and each Subsidiary shall remain responsible for complying with the provisions under Article 45 of this Decree-Law. 9. A Subsidiary can join an existing Tax Group following submission of an application to the Authority by the Parent Company and the relevant Subsidiary. 10. A Subsidiary shall leave the Tax Group in the following circumstances: a. Following approval by the Authority of an application by the Parent Company and the relevant Subsidiary. b. Where the relevant Subsidiary no longer meets the conditions to be a member Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 47 of the Tax Group as specified in Clause 1 of this Article. 11. A Tax Group shall cease to exist in any of the following circumstances: a. Following approval by the Authority of an application by the Parent Company. b. Where the Parent Company no longer meets the conditions to form a Tax Group as specified in Clause 1 of this Article, subject to the provisions of Clause 12 of this Article. 12. The Parent Company of a Tax Group can make an application to the Authority to be replaced by another Parent Company without a discontinuation of the Tax Group, in any of the following circumstances. a. The new Parent Company meets the conditions under Clause 1 of this Article relating to the former Parent Company. b. The former Parent Company ceases to exist and the new Parent Company or a Subsidiary is its universal legal successor. 13. Notwithstanding Clauses 11 and 12 of this Article, the Authority may, at its discretion, dissolve a Tax Group or change the Parent Company of a Tax Group based on information available to the Authority, and notify the Parent Company of such action taken.

Article 8 – Arm’s Length Principle and Transfer Pricing Documentation Requirements and the Calculation of the Taxable Income of a Tax Group 1. The Tax Group shall calculate the Taxable Income that is attributable to one or more of its members in accordance with Clause (2) of this Article where any of the following occurs: a. A member of the Tax Group has unutilised pre-Grouping Tax Losses. b. A member of the Tax Group has earned income for which the Tax Group can claim a Foreign Tax Credit against as specified under Article (47) of the Corporate Tax Law. c. A member of the Tax Group benefits from any Corporate Tax incentives as Ministerial Decision No. 125 of 2023 – As published by Ministry of Finance 5 specified under paragraph (g) of Clause (2) of Article (20) of the Corporate Tax Law. d. A member of the Tax Group has unutilised carried forward pre-Grouping Net Interest Expenditure under Clause (4) of Article (30) of the Corporate Tax Law. 2. If the Tax Group is required to calculate the Taxable Income that is attributable to any of its members as per Clause (1) of this Article, the Tax Group must: a. Calculate the Taxable Income that is attributable to each relevant member of the Tax Group in accordance with Article (34) of the Corporate Tax Law. b. Disclose any information as may be required by notice or through a decision issued by the Authority regarding transactions and arrangements between the relevant members and other members of the Tax Group and between the relevant members and their Related Parties and Connected Persons.