Abstract

This article evaluates and suggests ways to improve consolidation adjustments under the current consolidated return system as follows；First, under the current consolidated return system, dividends received which are excluded from the computation of consolidated taxable income are allocated to members of the consolidated group in proportion to the rate of stock holding. This treatment causes tax inequity since the allocation of exclusions recalculated according to the single entity concept does not properly reflect each member's contribution to the excluded amount increased due to the consolidated return. For the remedy to the problems, this paper suggests two alternative methods：(i) the method of allocating consolidated exclusions in proportion to each member's exclusions computed under its separate return and (ii) the method of allocating exclusions increased due to the consolidated return in proportion to the rate of each member's stock holding. Second, under the current consolidated return system, the excess of the limitation of charitable contributions and entertainment expenses which are computed according to the single entity concept is allocated to each members in proportion to its total payment of the expenses during the year. This treatment also causes tax inequity since the allocation does not reflect each member's contribution or accountability to the excess increased or decreased due to the consolidated return. For the remedy to the problems, this paper suggests two alternative methods：(i) the method of allocating consolidated excess in proportion to each member's excess computed under its separate return and (ii) the method of charging for the use of surplus for the limitation in addition to the allocation under the first method. Third, all transactions between members should be excluded from the revenue which is the basis of calculating the limitation of consolidated entertainment expenses. Fourth, regulations necessary for the treament of forwarding the excess of limitation of consolidated charitable contributions to the following year should be provided.

Keywords

• Consolidated Return
• Consolidation Adjustments
• Single Entity Concept
• Separate Entity Concept

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