3.2. Additional Terms Defined.
3.2.a. "Combined group" and "unitary group"
are used interchangeably in this rule and mean the group of all persons whose
income and apportionment factors are required to be taken into account pursuant
to W. Va. Code §§
11-24-1,
et seq. in determining the taxpayer's share of the net
business income or loss apportionable to this state.
3.2.b. "Combined report" means a schedule or
schedules, as required by W. Va. Code §§
11-24-1,
et seq. and this rule or any other rules or procedures
established by the Tax Commissioner, which are to be attached to a taxpayer's
annual corporation net income tax return and which report the income and
apportionment information of all corporations that are members of the
taxpayer's combined group, as well as any supporting information required by
the Commissioner.
3.2.c. "Commonly
owned" or "Common ownership" mean, in general, that more than 50% of the voting
control of one or more corporations or other entities, as applicable in the
context, is directly or indirectly owned by one or more common owners, whether
corporate or non-corporate, subject to the following specific rules and
examples.
3.2.c.1. Direct and Indirect Voting
Control, and Tiered Ownership. - If the same person or any related persons
holds directly or indirectly more than 50% of the voting control of a
corporation
(e.g., a parent corporation), that person is
considered to hold indirectly any stock or other interest in ownership or
control in a lower-tier corporation
(e.g., a subsidiary
corporation) that is directly or indirectly held by the parent corporation.
Accordingly, by way of illustration, a parent corporation and any one or more
corporations, whether or not in a direct chain, connected through direct or
indirect stock ownership, where more than 50% of the voting control of each
subsidiary corporation is directly or indirectly owned by a corporation or any
related persons, are treated as commonly owned or under common ownership, and
subject to inclusion in a combined group.
Example 1. Corporation A, a widely held publicly-traded
corporation, owns 51% of the stock of Corporation B; B owns 51% of Corporation
C; and C owns 60% of Corporation D. Corporations A, B, C, and D are all treated
as commonly owned or under common ownership, and subject to inclusion in a
combined group.
Example 2. Same facts as in Example 1, except Corporation C
owns 40% of Corporation D, with another 20% of D being owned by an individual
who owns 100% of Corporation A. All of Corporations A, B, C, and D are, again,
treated as commonly owned or under common ownership, and subject to inclusion
in a combined group. Corporation D is treated as commonly owned through the
aggregation of C's 40% ownership in D and the related individual's 20%
ownership in D.
3.2.c.2.
Related Versus Unrelated Owners.
3.2.c.2.A.
Two or more corporations, where stock representing more than 50% of the voting
control of each corporation is owned directly or indirectly by the same person
or any related persons, whether corporate or non-corporate, are treated as
commonly owned or under common ownership, and subject to inclusion in a
combined group. A common owner or owners need not be members of the combined
group.
Example 3. Individual X owns 51% of Corporation A, 60% of
Corporation B, and 100% of Corporation C. Corporations A, B, and C are all
treated as commonly owned or under common ownership, and subject to inclusion
in a combined group. This same conclusion would be reached if X owned 35% of B
and X's wife, a related person, owned 25% of B, so that together X and his wife
owned 60% of B.
Example 4. Foreign Corporation F owns 100% of the stock of
Corporation A which is organized in the U.S. and of Corporation B which is also
organized in the U.S. Corporations A and B each directly or indirectly own
various corporate subsidiaries in separate chains leading up to A and B, where
the voting control of each subsidiary is more than 50% owned by a higher-tier
corporation in the chain. Corporations A and B and all of their respective
direct and indirect subsidiaries are treated as commonly owned or under common
ownership, and subject to inclusion in a single combined group. Assuming that
no worldwide election is made, and that F is not a foreign corporation that
would be included in a "water's edge" combined group under W. Va. Code §
11-24-13f(a),
F itself would not be subject to inclusion in the combined group.
3.2.c.2.B. Two or more
corporations are not treated as commonly owned or under common ownership, and
subject to inclusion in a combined group, solely because the corporations have
one or more unrelated owners in common, where aggregation of the ownership of
the unrelated owners would be necessary in order to represent more than 50% of
the voting control of any of the corporations.
Example 5. Individual I-1 owns stock representing 40% of the
voting control of Corporation A and stock representing 20% of the voting
control of Corporation B. Individual I-2. owns 30% of A and 45% of B. I-1 and
I-2. are not related persons, and A and B are not otherwise related persons. A
and B are not treated as commonly owned or under common ownership, and thus are
not subject to inclusion in a combined group.
3.2.c.3. Stapled entities. -- Two or more
corporations that are "stapled entities" are treated as commonly owned or under
common ownership, and subject to inclusion in a combined group. Stapled
entities are entities where, by reason of their form of ownership, or
restrictions on transfer of ownership, or other terms or conditions, whether
existing by operation of law, by written contract, or otherwise, in the case of
a transfer of one or more ownership interests, require more than 50% of the
voting control of each entity to be transferred.
3.2.c.4. Corporations under common ownership.
-- A group of corporations under common ownership may be engaged in one or more
unitary businesses.
Example 6. Assuming the same facts as in Example 4 of this
subdivision, both A and B and all of their direct and indirect subsidiaries are
engaged in unitary business X. In addition, A and all of its subsidiaries are
engaged in unitary business Y, but B and its subsidiaries are not engaged in
unitary business Y. A and B and all of their respective direct and indirect
subsidiaries would be included in a combined group with respect to unitary
business X, and A and all of its direct and indirect subsidiaries would be
included in a combined group with respect to unitary business Y. Corporation A
and all of its respective direct and indirect subsidiaries need to divide their
respective adjusted federal taxable incomes to properly assign the portion
thereof fairly attributable to each unitary business. This example assumes that
the corporations have no other business or nonbusiness income.
3.2.c.5. Related Parties;
Constructive Ownership. - In determining whether a person is a related person
or is considered to hold stock or other ownership or control interests in an
entity that is directly held by another person, the constructive ownership
rules described in Internal Revenue Code §318 generally apply, except
that:
3.2.c.5.A. In applying IRC
§318(a)(2), if a partnership, estate, trust, or corporation owns, directly
or indirectly, more than 50% of the voting control of a corporation, it is
considered to own all of the stock or other ownership or control interests in
the corporation; and
3.2.c.5.B. If
a person has an option to acquire stock or other ownership interests in an
entity, the stock or other ownership interests are treated as owned by that
person only to the extent determined by the Tax Commissioner to be necessary to
prevent tax avoidance.
3.2.c.6. Common ownership. -- In determining
common ownership, the Tax Commissioner may take into account any plan or
arrangement, whether existing by operation of law, by contract, or otherwise,
for bestowing or shifting ownership or voting control, in addition to the terms
of any actual stock ownership or control.
3.2.d. "Combined return" means the annual
return filed by a combined group member under W. Va. Code §§
11-24-1,
et seq., or the single annual return filed by the taxable
members of a combined group pursuant to the annual election made under W. Va.
Code §
11-24-13e.
3.2.e. "Intercompany transaction" means a
transaction between corporations which are members of the same combined
reporting group immediately after the transaction.
3.2.f. "Principal member" means the member of
the combined reporting group whose accounting period is used as a reference
period for all members of the combined reporting group to aggregate and
apportion combined report business income of the group. A principal member need
not be a taxpayer member.
3.2.g.
"Unitary business" means a single economic enterprise that is made up either of
separate parts of a single business entity or of a commonly controlled group of
business entities that are 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 among them and a
significant flow of value to the separate parts.
3.2.h. "Water's-edge combined report" means a
combined report that includes all of the entities described in W. Va. Code
§§
11-24-13f(a)(1)
through (7) that are members of the combined
group.
3.2.i. "Worldwide election"
means an election by a taxable member of the combined group on behalf of all of
the members of the group engaged in a unitary business to treat as its combined
group, for purposes of W. Va. Code §
11-24-13f,
all members that are engaged in the unitary business, wherever located, on such
terms and in keeping with the requirements of the corporation net income tax
that are further explained in rules of the Tax Commissioner and any forms and
instructions or other notices that are issued by the Tax
Commissioner.
