Comparative Corporate Tax: Identifying Corporations


  • The definition of company/corporation:
    • Australia:
      • ITAA 1997 s. 995-1… “company” means: (a) a body corporate; or (b) any other unincorporated association or body of persons; but does not include a partnership or a non-entity joint venture.
      • Conclusions:
        1. General collective definition; Using ‘means’
        2. Excluding partnerships
    • UK:
      • CTA 2010 s. 1121 [ITA s. 992]: ‘company’ means any body corporate or unincorporated association, but does not include a partnership, a local authority or a local authority association.
      • Conclusions:
        1. General collective definition; Using ‘means’
        2. Excluding partnerships
          • Section 1 of the Partnership Act 1890: Partnership is the relation which subsists between persons carrying on a business in common with a view of profit
    • US:
      • IRC s. 7701(a)(3) The term “corporation” includes associations, joint-stock companies, and insurance companies
      • Conclusions:
        1. General collective definition; Using ‘includes’
          • Therefore, ‘corporation’ takes ordinary meaning plus the inclusion.
        2. No exclusions for partnerships (as a particular type of unincorporated association). Meanwhile, association is included in the definition of corporation.
          • Substantive approach
            Morrissey v Commissioner: an organisation will be treated as an association (which is included in the definition of corporation) if its characteristics are nearly resembles a corporation than a partnership or trust. (In other words, a patnership will be determined as a corporation or not based on its characteristics)
          • Limited liability company (LLC) statutes: granting organisations as many corporate attributes as possible without resulting in classification as a corporation for US federal tax purposes.
          • Check-the-box regime: many business entities, including limited liability companies, partnerships, trusts and sole traders, may elect whether to be treated as a corporation or be transparent for tax purposes.
    • Germany:
      • KStG s. 1(1): The following corporations, unincorporated organizations and trusts are subject to unlimited corporation tax liability if their business management or seat of operations is in the country:
        1. Incorporated companies (European companies, stock corporations [AGs], limited partnerships with shares [KGaAs], limited liability companies [GmbHs]);
        2. Cooperatives…
        3. Mutual insurance and pension fund organizations;
        4. Other private law legal entities;
        5. Organizations, institutions, foundations and other special-purpose funds without legal personality under private law [like associations];
        6. Commercial businesses of public-sector legal entities.
      • Exclusion: Section 3(1) of the Corporate Income Tax Law (KStG) goes on to provide that unincorporated associations are not subject to corporation tax if their income is subject to corporation tax or to income tax ‘directly through another taxpayer’. The Income Tax Law specifically provides that the income of partners from business includes their ‘profit shares’ from the partnership (EStG (Germany) s. 15(1)2). Civil law classification applies for the purposes of determining what is a partnership. As a result, partnerships per se are not subject to corporation tax.
      • Conclusions:
        1. List approach (as opposite with general collective definition)
        2. Excluding partnerships
  • The classification of widely/closely held corporations
    • Shareholders in a closely held corporation are often capable of acting collectively so as to control the corporation in a way that shareholders in widely held corporations cannot. As a result, many countries have special rules applicable to closely held corporations, and so it is necessary to identify this category of corporation
    • Closely held corporations
      • Australia:
        • ITAA 1997 s. 995-1: private company means a company that is not a public company for the income year…
        • Under ITAA 1936 s. 103A(3) and subject to (5), a company is not a public company under (2)(a) or (b) if 20 persons or less-
          (a) hold or have the right to acquire 75% or more of the paid up capital of the company
          (b) were capable of exercising 75% or more of the voting power of the company
          (c) were paid 75% or more of dividends paid by the company
        • Under s. 103A(5) and (6) the Commissioner has the discretion to treat a private company as a public company and vice versa.
      • UK:
        • CTA 2010 s. 439 [A] “close company” is a company… under the control-
          (a) of 5 or fewer participators, or
          (b) of participators who are directors.
      • US:
        • IRC s. 1361 (a)(1) For purposes of this title, the term “S [small] corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year…
        • IRC s. 1361 (b)(1) For purposes of this subchapter, the term “small business corporation” means a domestic corporation which is not an ineligible corporation and which does not-
          (A) have more than 100 shareholders,
          (B) have as a shareholder a person… who is not an individual,
          (C) have a nonresident alien as a shareholder, and
          (D) have more than 1 class of stock.
        • IRC s. 542 (a) For purposes of this subtitle, the term “personal holding company” means any corporation (other than a corporation described in subsection (c)) if-
          (1) At least 60 percent of its adjusted ordinary gross income… for the taxable year is personal holding company income… and
          (2) At any time during the last half of the taxable year more than 50 percent in value of its outstanding stock is owned, directly or indirectly, by or for not more than 5 individuals.
      • Germany: N/A
    • Widely held corporations
      • Australia:
        • ITAA 1997 s. 995-1
          public company means a company that is a public company (as defined by section 103A of [ITAA 1936]) for the income year.
        • A company is a public company under ITAA 1936 s. 103A(2) if-
          (a) its shares are listed on a stock exchange
          (b) it is a co-operative company
          (c) it is a non-profit company prohibited from making distributions to it members…
          (d) it is a subsidiary of a public company
      • UK:
        • A company is not a close company if it is non-resident [s. 442] or if 35% of the voting rights of the company are allotted to the public and quoted [s. 446] or the company is controlled by non-close companies [s. 444].
      • US: N/A
      • Germany: N/A



Hi, this article is summarised from Peter Haris’ “Corporate Tax Law: Structure, Policy and Practice (Cambridge Tax Law Series)”. If you wish to read the book, please click FREE PREVIEW from Amazon.

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