In recent years we have seen a substantial increase in tax compliance requirements. We typically go back to the introduction of FATCA which snowballed the increase in reporting requirements as we know it today. The likelihood is that these requirements will continue to increase in the coming years, as we have already started to see discussions to widen the scope of a number of existing international tax reporting requirements.

The most basic requirement for companies, is the need to file individual tax returns on a stand-alone basis. These tax returns are typically a reflection of the financial statements, whether audited or otherwise, with the necessary adjustments to account for differences between the domestic tax legislation and international accounting standards.

Several countries have introduced the notion of Consolidated Tax Groups. This allows a number of companies, which fall within the definition of a ‘group’ for purposes of such Rules, to file one tax return as a group rather than filing individual, standalone returns for each company within the group.

Whilst there are many benefits associated with the above, the initial and most obvious one, is the administrative benefit of having to simply file one tax return, as opposed to a number of returns for each company within the group. When the group is made up of a large number of companies, the administrative benefit, and time and cost saving increases substantially.

Tax payments is another issue. Consolidated tax groups, or ‘Fiscal Units’, as they are sometimes referred to, also allow the group to make one tax payment for the whole group, as opposed to a number of individual payments for each individual company within the fiscal unit.

The only possible drawback of the creation of a fiscal unit is that, many times, this requires the drawing up of an additional set up financial statements for the consolidated group, as it would require the elimination of intra group transactions. This could add to the costs of a particular structure; however one needs to assess the size of the group and compare this cost with the benefits and savings resulting from the fact that a number of tax returns which will no longer be required as a result of the formation of a fiscal unit. It is also important to note that, the introduction of Fiscal Units in most countries is an optional one, and taxpayers may decide to create a fiscal unit or not, depending on whether they deem that such a creation will benefit the organisation and the group.

As Rwanda has no provision for group taxation, it should definitely consider the introduction of such rules within its income tax framework. This will also help, not simply from an administrative perspective, but also in terms of continuing to attract foreign direct investment to the country, as most MNEs (Multinational Enterprises) would be operating in jurisdictions which allow for the creation of fiscal units, and the benefits they provide.

September 2021

The wriiter is a co-founding partner of Seed, an internationally focused research-driven advisory firm based out of Europe (Malta) and the Middle East.

www.seedconsultancy.com | nicky@seedconsultancy.com