Current through Register Vol. 56, No. 18, September 16, 2024
(a) Each taxable member of a combined group shall
determine its entire net income from the unitary business as its share of the entire
net income of the combined group in accordance with a combined unitary tax return.
The combined group's entire net income is the aggregate sum of entire net income or
loss, subject to allocation and derived from a unitary business, or the aggregate
sum of entire net income or loss of a New Jersey affiliated group in the case of an
affiliated group election, as reported on a combined return of every taxable member
and non-taxable member of the combined group. The entire net income from the unitary
business of a combined group shall be determined, as follows:
1. For a member incorporated in the United States,
the entire net income to be included in the income of the combined group shall be
the member's entire net income otherwise determined pursuant to the Corporation
Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.).
2. For a member not incorporated in the United
States, the income to be included in the entire net income of the combined group
shall be determined from a profit and loss statement that shall be prepared for each
foreign branch or corporation in the currency in which the books of account of the
branch or corporation are regularly maintained, and shall be adjusted to conform to
the accounting principles generally accepted in the United States for the
presentation of those statements and further adjusted to take into account any
book-tax differences required by Federal or State law. The profit and loss statement
of each foreign member of the combined group and the allocation factors related
thereto, whether United States or foreign, shall be translated into or from the
currency in which the parent company maintains its books and records on any
reasonable basis consistently applied on a year-to-year or entity-by-entity basis.
Income shall be expressed in United States dollars. In lieu of these procedures and
subject to the determination of the Director that the income to be reported
reasonably approximates income as determined under the Corporation Business Tax Act,
P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.), income may be determined on any
reasonable basis consistently applied on a year-to-year or entity-by-entity basis.
See N.J.A.C. 18:721.8 for more information.
i. The
International Financial Reporting Standards (I.F.R.S.), which are issued by the
International Accounting Standards Board (I.A.S.B.), qualifies as an acceptable
method that "reasonably approximates income" if that is the only method of
accounting the specific entity used.
(b) Income from a partnership where a member of
the combined group is a partner is as follows:
1.
If a member of a combined group receives income from the unitary business from a
partnership, the combined group's entire net income shall include the member's
direct and indirect distributive share of the partnership's unitary business
income.
2. The distributive share of
income received by a limited partner from a qualified investment partnership shall
not be considered to be derived from a unitary business, unless the general partner
of such investment partnership and such limited partner have common ownership. To
the extent that the limited partner is otherwise carrying on or doing business in
New Jersey, it shall allocate its distributive share of income from a qualified
investment partnership, in accordance with subsection (a) of section 3 at
P.L.
2001, c. 136 (N.J.S.A.
54:10A-15.6) or subsection (a) of section 4 at
P.L.
2001, c. 136 (N.J.S.A.
54:10A-15.7), as applicable. If the limited partner is not otherwise carrying on or
doing business in New Jersey, its distributive share of income from an investment
partnership is not subject to tax pursuant to this chapter.
(c) All the dividends and deemed dividends paid by
one member to another member of the combined group shall be eliminated from the
income of the recipient. Any dividends that are not eligible for elimination (that
is, dividends from subsidiaries not included as members of the combined group) may
be eligible for exclusion pursuant to N.J.S.A. 54:10A-4(k)(5).
1. Where a taxpayer is a member of a combined
group and receives dividends from a subsidiary that is not included in the combined
return, the dividends must be included in the entire net income of the taxpayer
pursuant to N.J.S.A. 54:10A-4(k)(5). For privilege periods ending on and after July
31, 2020, the members of a combined group filing a New Jersey combined return shall
be treated as one taxpayer with regard to dividends and deemed dividends that were
received as part of the unitary business of the combined group.
2. If the dividends and deemed dividends are not
part of the unitary business of the combined group and are paid to a member of the
group, the income is included on Schedule X in such recipient member's income and
the dividend exclusion pursuant to N.J.S.A. 54:10A-4(k)(5) is applied against the
separate income of such member on Schedule X.
3. For a combined group with a fiscal 2018
privilege period that ended on or after July 31, 2019, where the combined group
included both U.S. domestic corporations as members and non-U.S. corporations as
members, and pursuant to the applicability dates at
26 CFR
1.965-9(a) for U.S. domestic
corporations that were required to include the deemed repatriation dividends from
those non-U.S. corporations in entire net income during that fiscal period for which
the first New Jersey combined return is due, the deemed repatriation dividends shall
be eligible for the intercompany dividend elimination.
(d) Except as otherwise provided for in this
section, business income from an intercompany transaction among members of the same
combined group shall be deferred in a manner similar to the deferral at
26
CFR 1.1502-13. If one of the events at either (d)1
or 2 below occurs, deferred income resulting from an intercompany transaction among
members of a combined group shall be restored to the income of the seller and shall
be included in the net income of the combined group as if the seller had earned the
income immediately before the event.
1. The object
of a deferred intercompany transaction is:
i.
Resold by the buyer to an entity that is not a member of the combined
group;
ii. Resold by the buyer to an
entity that is a member of the combined group for use outside the unitary business
in which the buyer and seller are engaged; or
iii. Converted by the buyer to a use outside the
unitary business in which the buyer and seller are engaged; or
2. The buyer and seller cease to be members of the
same combined group, and no portion of the income or loss is included in the entire
net income of the unitary group, regardless of whether the buyer and seller remain
sufficiently interdependent, integrated, and interrelated through their activities,
so as to provide a synergy and mutual benefit that produces a sharing or exchange of
value between them.
i. In the case of an event set
forth at (d)2 above, no portion of the income or loss shall be included in entire
net income of the combined group, but shall be included in the entire net income of
the respective member.
(e) A charitable expense incurred by a member of a
combined group shall, to the extent allowable as a deduction pursuant to I.R.C.
§ 170, be subtracted first from the combined group's entire net income, subject
to the income limitations of that section applied to the entire net income of the
group. A charitable deduction disallowed pursuant to I.R.C. § 170, but allowed
as a carryover deduction in a subsequent privilege period, shall be treated as
originally incurred in the subsequent year by the same member and the provisions of
this section shall apply in the subsequent privilege period in determining the
allowable deduction for that privilege period.
(f) Pursuant to N.J.S.A. 54:10A-4.6.j, an expense
of a member of the combined group that is directly or indirectly attributable to the
income of any member of the combined group, which income this State is prohibited
from taxing pursuant to the laws or Constitution of the United States, shall be
disallowed as a deduction for purposes of determining the combined group's entire
net income.
1. In determining such amounts, the
members may use such attribution ratio methods and tracing protocols that the
members used for Federal tax purposes.
2. Amounts disallowed pursuant to N.J.S.A.
54:10A-4.6.j will not be required to be added back for the purposes of N.J.S.A.
54:10A-4(k)(2)(I) or 54:10A-4.4.
(g) To the extent consistent with the Corporation
Business Tax Act, P.L. 1945, c. 162 (N.J.S.A.
54:10A-1 et seq.), the Federal rules and
regulations governing consolidated return net operating losses and net operating
loss carryovers shall apply to the New Jersey net operating loss carryover
provisions pursuant to
N.J.S.A.
54:10A-4.6.h as though the combined group filed a
Federal consolidated return, regardless of how the members of the combined group
filed for Federal purposes.
(h) The
principles and provisions set forth in Federal regulations promulgated pursuant to
I.R.C. § 1502, shall apply to the extent consistent with the Corporation
Business Tax Act, New Jersey combined group membership principles, New Jersey
combined unitary return principles, and rules set forth by the Director. For more
information, see N.J.A.C. 18:7-21.27.
(i) For purposes of the deduction allowed in
paragraph (4) of subsection (k) of section 4 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-4), a
combined group shall be treated as one taxpayer; provided, however, a combined group
shall only be eligible for the deduction if at least one of the taxable members is a
banking corporation and the taxable member has an international banking facility.
The income of the combined group shall not be eligible for the deduction allowed in
paragraph (4) of subsection (k) of section 4 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-4), if
such income was already eliminated pursuant to this section.
(j) This section shall apply to worldwide group
elective combined returns and affiliated group elective combined returns in
accordance with section 23 at
P.L.
2018, c. 48 (N.J.S.A.
54:10A-4.11). An election to file an affiliated
group combined return shall be an election to treat all of the member's attributes
and income as though they were from one unitary business.
(k) Income excluded from Federal taxable income
pursuant to a tax treaty is not added back into the entire net income of the
combined group, and, thus, no elimination, deduction, or additional exclusion is
permitted when computing the entire net income, since said income is not included in
the entire net income of the combined group.
1.
Example: Member 1 reports GILTI income for Federal purposes and receives a
corresponding I.R.C. § 250 deduction, and member 2 is incorporated in a high
tax jurisdiction that has a comprehensive tax treaty with the U.S., such as Germany,
that results in member 2's non-U.S. income being excluded from the Federal taxable
income of member 2 and also qualifying for the high tax exclusion in the GILTI
computation of member 1. When computing the income of the combined group, member 2's
treaty protected income is excluded from entire net income of the combined group and
member 1 cannot eliminate the GILTI amount by member 2's income that was never
included in entire net income or member 1's GILTI reported for Federal purposes, nor
would member 1 be entitled to an I.R.C. § 250 deduction corresponding to said
amount for either Federal or New Jersey purposes.
