The pros and cons of a fiscal unity

The pros and cons of forming a fiscal unity are different for turnover tax than for corporation tax. We’ll discuss this in more detail for each type of tax.

Turnover tax

Regarding turnover tax, there’s actually just one big advantage and one big disadvantage to forming a fiscal unity.

The advantage is that no sales tax needs to be charged on transactions between the companies themselves. This means that the holding company doesn’t have to pay VAT on an invoice it sends to a subsidiary. This can be beneficial for the liquidity.

The disadvantage is that all companies within the fiscal unity are jointly and severally liable for the entire turnover tax. Suppose the company with the highest turnover is unable to pay the VAT, then this can be recovered from the other companies within the fiscal unity, something that’s not possible if there’s no fiscal unity.

Corporation tax

Regarding corporation tax there are more pros and cons to forming a fiscal unity. We’ve listed the main ones below. It’s important to note that these don’t always apply, but depend on the specific situation. 

The advantages of a fiscal unity in regard to corporation tax:

• It requires for only one corporate income tax return to be filed. This is done under the name of the holding company. However, it’s still necessary to have annual accounts for all subsidiaries drawn up. So this advantage will save little time.
• Losses can be set off against each other within one year. Now this can be interesting. Suppose that the holding company reports a €100.000,- loss and one of the subsidiaries reports a €100.000,- profit. Normally, the holding company would pay €0,- corporation tax in 2020, and the subsidiary would pay €100.000*16,5% = €16.500. In the case of a fiscal unity, this profit can be set off against the loss. As a result, no corporation tax needs to be paid.
• Internal service deliveries are not taken into account. This means that invoices drawn up between the holding company and a subsidiary aren’t included in the corporate income tax. However, this isn’t necessarily advantageous. As stated before, it’s still necessary to draw up annual accounts for each individual subsidiary. Which means that it actually provides more work, because the bookkeeper will now have to extract these specific transactions from the books; the so-called consolidation.
• It’s possible to arrange tax-free restructuring within a fiscal unity.

The disadvantages of a fiscal unity regarding corporation tax:

• Every company within the fiscal unity is jointly and severally liable for the entire corporate tax debt, just as they are for the turnover tax of the fiscal unity.
• The step-up tax rate of 16.5% to 25% only applies once. This can lead to major disadvantages, especially in larger firms.
• The small projects investment credit can only be applied once. When no fiscal unity is formed, it’s applicable to every BV.
• As shown, forming a fiscal unity doesn’t only have advantages. In practice, some of the advantages can even turn out to be not beneficial at all. So always make sure to have an overview of the situation and weigh all the pros and cons before forming a fiscal unity.