Current through September 18, 2024
A. "Combined group" means a group of two or
more entities treated as C corporations for federal income tax purposes in
which more than 50 percent (50%) of the voting stock of each member corporation
is directly or indirectly owned by a common owner or owners, either corporate
or non-corporate, or by one or more of the member corporations, and that are
engaged in a unitary business. Common ownership is determined without regard to
the location, residence, or domicile of the owner(s).
1. Example: Parent Corp. is organized and
based in Japan. Its two subsidiaries - Unit One Corp. and Unit Two Corp. - are
U.S. corporations and are treated as C corporations for federal tax purposes.
Unit One Corp. and Unit Two Corp. have Rhode Island nexus. Parent Corp. owns
seventy-five percent (75%) of each subsidiary. Because of their common
ownership, Unit One Corp. and Unit Two Corp. are deemed to comprise a combined
group for purposes of Rhode Island's mandatory unitary combined reporting
regime. Common ownership is determined without regard to the location,
residence, or domicile of the owner(s). (The entities in this example must be
engaged in a unitary business to file a combined return for Rhode
Island.)
B. The use of a
combined return does not disregard the separate identities of the taxpayer
members of the combined group; each taxpayer member is responsible for tax
based on its taxable income or loss apportioned to Rhode Island.
C. A group shall be deemed a combined group
even if the group is not eligible to apportion its income because all
corporations in the group do business solely in Rhode Island.
D. Combined group remains in existence for as
long as two or more corporations are under common ownership and are engaged in
a unitary business - and at least one member of the combined group has nexus in
Rhode Island.
E. The mere addition
of new members or departure of existing members does not create a new combined
group.
F. In some cases, a taxpayer
may make an election to treat, as its combined group for Rhode Island corporate
income tax purposes, all of the members of its federal consolidated group. For
an explanation of the election and the related requirements and limitations,
please see §
10.9 of this Part.
1. If a corporation is not includible in a
combined return, or in a consolidated group for Rhode Island combined reporting
purposes, it must still file a Rhode Island return on a separate entity basis
and pay any required tax if it has nexus in Rhode Island.
G. For additional information about non-U.S.
corporations, please see the flow chart in the example at §
10.7(T) of this
Part
H. Included corporations.
1. All of the income and apportionment
factors must be included for the taxpayer members of a combined group. The list
of members to be included in a combined group includes, but is not limited to,
the following:
a. U.S. corporations;
and
b. Any member, regardless of
where it is incorporated or formed, if the average of its sales factor within
the United States is twenty percent (20%) or more.
2. The following members that are not
described above are included in the combined group only to the extent of any
U.S. source income and factors:
a. Any member
that is a resident of a country that does not have a comprehensive income tax
treaty with the United States and earns more than twenty percent (20%) of its
income, directly or indirectly, from intangible property or service-related
activities that are deductible against the business income of the other members
of the water's-edge group, to the extent of that income and the apportionment
factor related thereto.
I. Excluded corporations. Members of a
combined group shall exclude as a member and disregard the income and
apportionment factor of any corporation not incorporated in the United States
(a "non-U.S. corporation") if its sales factor for total receipts outside the
United States is eighty percent (80%) or more
1. Example: Bristol Biz Corp., Kent Biz
Corp., Newport Biz Corp., Providence Biz Corp., and Washington Biz Corp. are
all C corporations under common ownership engaged in a unitary business and
subject to Rhode Island combined reporting. Bristol, Kent, and Newport are all
non-U.S. corporations; Providence and Washington are both U.S. corporations
|
Combined Reporting Group
|
|
Entity:
|
Sales Factor for Receipts in U.S.
|
Part of Combined Group
|
|
Bristol Biz Corp.
|
10%
|
No
|
|
Kent Biz Corp.
|
10%
|
No
|
|
Newport Biz Corp.
|
25%
|
Yes
|
|
Providence Biz Corp.
|
100%
|
Yes
|
|
Washington Biz Corp.
|
100%
|
Yes
|
a. In this
example, Bristol and Kent are not part of the combined group because they are
non-U.S. corporations and their sales factors for total receipts outside the
U.S. are 80 percent (80%) or more. Newport is a non-U.S. corporation, but its
sales factor for total receipts outside the U.S. is only 75 percent (75%), so
it is part of the combined group. Providence and Washington are part of the
combined group because they are U.S. corporations; a U.S. corporation is
subject to combined reporting regardless of its U.S. sales factor.
b. Note, also, that the sales factor - also
known as the receipts factor - takes into account total receipts and includes
rents, royalties, licensing fees, and other revenue. For purposes of Rhode
Island combined reporting, receipts include -- but are not limited to -- gross
sales of tangible personal property, gross income from services, gross income
from intangible personal property, gross income from rentals, net income from
the sale of real and personal property, and net income from the sale or other
disposition of securities or financial obligations. In this example, Newport
Biz Corp. is organized and located in the Republic of Ireland, licensing
intangibles to the U.S. - so revenue from such licensing represents a U.S. sale
for combined reporting purposes.
c.
For further information about excluding and including non-U.S. corporations,
please see the flow chart in the example at the end of this Part.
J. A water's edge
election is not allowed for purposes of Rhode Island combined reporting.
Water's edge treatment is mandatory. Thus, members of the combined group must
exclude as a member and disregard the income and apportionment factor of any
corporation incorporated in a foreign jurisdiction - a foreign corporation - if
its sales factor for total receipts outside the United States is eighty percent
(80%) or more.
K. If an entity is
treated as a C corporation for federal income tax purposes, is included on a
group's federal consolidated return, and is also taxed by Rhode Island under
R.I. Gen. Laws Chapter 44-13 ("Public Service Corporation Tax"), Chapter
44-13.1 ("Taxation of Railroad Corporations"), Chapter 44-14 ("Taxation of
Banks"), Chapter 44-17 ("Taxation of Insurance Companies"), or Chapter 27-43
("Captive Insurance Companies"), said entity shall be excluded from the
combined group. Furthermore, neither the income or loss nor the apportionment
factor of such a person or entity shall be included - directly or indirectly -
in the combined return.
L.
Corporations that are not taxable under the Internal Revenue Code shall not be
included in the combined group.
M.
When a partnership, limited liability company, S corporation, estate, trust, or
other such entity is treated as a pass-through entity for federal tax purposes,
such an entity shall not be part of the combined group. However, the combined
group's share of such a pass-through entity's income, normally reported on
federal Schedule K-1, must be reported as part of the combined group's income.
When income is reported or recognized by the pass-through entity to the
combined group, and thus becomes included in the group filing, only the sales
of the pass-through entity shall be used for apportionment purposes at the
group level.
N. In summary:
1. The following entities are not subject to
combined reporting:
a. state banks;
b. mutual savings banks;
c. federal savings banks;
d. trust companies;
e. national banking associations;
f. building and loan associations;
g. credit unions;
h. loan and investment companies;
i. public service corporations;
j. insurance companies;
k. captive insurance companies taxed under
R.I. Gen. Laws Chapter 27-43;
l. S
corporations;
m. partnerships
treated as pass-through entities for federal tax purposes;
n. limited liability companies treated as
pass-through entities for federal tax purposes;
o. any sole proprietorship or similar such
entity that is treated as an entity disregarded as separate from its owner for
federal income tax purposes ("disregarded entities"); and
p. in general, any corporation incorporated
in a foreign jurisdiction if its sales factor for total receipts outside the
United States is eighty percent (80%) or more.
2. For additional information on which
entities must be included or excluded from the federal consolidated group for
purposes of Rhode Island combined reporting, please see §
10.9 of this Part.
O. Fifty percent test
1. The fifty percent (50%) ownership test is
satisfied in the following circumstances:
a.
A parent corporation and one or more corporations or chains of corporations
which are connected through voting stock ownership with the parent, whether
such ownership is direct or indirect, but only if -
(1) the parent owns more than fifty percent
(50%) of the outstanding voting stock of at least one corporation,
and
(2) more than fifty percent
(50%) of the outstanding voting stock of each of the corporations, other than
the parent, is owned directly or indirectly by one or more of the other
corporations.
2. Any two or more corporations, if more than
fifty percent (50%) of the outstanding voting stock of each of the corporations
is owned, or indirectly owned, by the same person.
3. Any two or more corporations, more than
fifty percent (50%) of whose voting stock is cumulatively owned (without regard
to indirect ownership rules), or for the benefit of, members of the same
family.
4. Members of the same
family include an individual, his or her spouse, a party to a civil union,
ancestors, brothers or sisters, lineal descendants, and their respective
spouses.
P. Except as
otherwise provided, voting stock is "owned" when title to the stock is directly
held or if the voting stock is indirectly owned.
1. An individual indirectly owns voting stock
that is owned by any of the following:
a. his
or her spouse (other than a spouse who is legally separated from the
individual);
b. party to a civil
union;
c. his or her children,
grandchildren, and parents;
d. an
estate or trust, of which the individual is an executor, trustee, or grantor,
to the extent that the estate or trust is for the benefit of that individual's
spouse, party to a civil union, children, grandchildren or parents.
2. Voting stock owned by a
partnership, other than a limited partnership, is indirectly owned by a partner
in proportion to the partner's capital interest in the partnership. For this
purpose, a partnership other than a limited partnership is treated as owning
proportionately the stock owned by any other partnership or limited partnership
in which it has a tiered interest. Voting stock owned by a limited partnership
is indirectly owned by the general partner who has authority to determine how
the stock is voted. (This section shall also apply to LLCs.)
3. Voting stock owned by a corporation, or a
member of a controlled group of which the corporation is the parent
corporation, is indirectly owned by any shareholder owning more than fifty
percent (50%) of the voting stock of the corporation.
Q. In determining ownership, effective
control over election of the board of directors will be considered. For
example, a group of shareholders acting in concert who collectively own over
fifty percent (50%) of the voting stock of each of two or more corporations
will be considered to be common owners of more than fifty percent (50%) of the
voting stock of each of those corporations. "Voting stock" refers only to those
shares of voting stock having the power to elect the corporation's board of
directors. If the power otherwise held in corporate stock to vote the
membership of the board is transferred to another, other than a transfer of
proxy only, the holder of that power will be considered to be the owner of that
stock to the exclusion of the transferor of such power.
R. In addition to the tests enumerated above,
the Tax Administrator may consider any other circumstance that tends to
demonstrate that the fifty percent (50%) direct or indirect common ownership
test was met or was not met. The Tax Administrator may rely on constructive
ownership rules under
26 U.S.C.§
318.
S. The following example illustrates certain
principles outlined in this §
10.7 of this Part:
1. Example: Corporation D owns stock
representing ten percent (10%) of the voting power of Corporation E and has a
seventy-five percent (75%) interest in Partnership F. Partnership F owns stock
representing forty-five percent (45%) of the voting power of Corporation E.
Corporation D is considered to constructively own stock representing fifty-five
percent (55%) (10% + 45%) of the voting power of Corporation E. This is because
Corporation D owns more than fifty percent (50%) of Partnership F and is
therefore considered to own all of the Corporation E stock owned by Partnership
F.
T. The following flow
chart is intended to assist corporations and their tax advisers in determining
the composition of a combined group - and whether to include or exclude a
member's gross receipts in the apportionment computation - for purposes of
Rhode Island's mandatory unitary combined reporting regime.
Click here to view
image
U. The
following provides further information for interpreting the flow chart above.
1. As noted elsewhere in this regulation,
members of a combined group shall exclude as a member and disregard the income
and apportionment factor of any corporation not incorporated in the United
States (a "non-U.S. corporation") if its sales factor for total receipts
outside the United States is eighty percent (80%) or more.
2. If a non-U.S. corporation is includible as
a member in the combined group, to the extent that such non-U.S. corporation's
income is subject to the provisions of a federal income tax treaty, such income
is not includible in the combined group's net income. Such member shall also
not include in the combined return any expenses or apportionment factor
attributable to income that is subject to the provisions of a federal income
tax treaty.
3. For purposes of this
§
10.7 of
this Part, the term "federal income tax treaty" means a comprehensive income
tax treaty between the United States and a foreign jurisdiction, other than a
foreign jurisdiction which is defined as a tax haven; provided, however, that
if the Tax Administrator determines that a combined group member non-U.S.
corporation is organized in a tax haven that has a federal income tax treaty
with the United States, its income subject to a federal income tax treaty, and
any expenses or apportionment factor attributable to such income, shall not be
included in the combined group net income or combined return if:
a. the transactions conducted between such
non-U.S. corporation and other members of the combined group are done on an
arm's length basis and not with the principal purpose to avoid the payment of
taxes due under R.I. Gen. Laws Chapter 44-11; or
b. the member establishes that the inclusion
of such net income in combined group net income is unreasonable.
4. The term "tax haven' means a
jurisdiction that, during the tax year in question, has no or nominal effective
tax on the relevant income and:
a. has laws
or practices that prevent effective exchange of information for tax purposes
with other governments on taxpayers benefiting from the tax regime;
b. has a tax regime which lacks transparency.
A tax regime lacks transparency if the details of legislative, legal or
administrative provisions are not open and apparent or are not consistently
applied among similarly situated taxpayers, or if the information needed by tax
authorities to determine a taxpayer's correct tax liability, such as accounting
records and underlying documentation, is not adequately available;
c. facilitates the establishment of
foreign-owned entities without the need for a local substantive presence or
prohibits these entities from having any commercial impact on the local
economy;
d. explicitly or
implicitly excludes the jurisdiction's resident taxpayers from taking advantage
of the tax regime benefits, or prohibits enterprises that benefit from the
regime from operating in the jurisdiction's domestic market; or
e. has created a tax regime which is
favorable for tax avoidance, based upon an overall assessment of relevant
factors, including whether the jurisdiction has a significant untaxed offshore
financial/other services sector relative to its overall economy.
