Domestically Inverted Corporation's and Consolidated Financial Statements

[Andy_in_KC]

Setup:

Company A: Publicly traded Canadian Company has zero revenue generated in Canada, yet is the economic unit generating all of the financing activities and possesses a $120M CAD tax loss carry forward asset.

Company B: US HOLDCO Delaware based Corporation, wholly owned by Company A since 2016, however not disclosed in any Audited Financial Statements of Company A, which is the ultimate parent entity. Company B US HOLDCO, has a single sole director (CEO of Company A) rather directors of Company A.

Company(s) C&D: Two separate US based subsidiaries, operating solely in the United States and together make up 100% of all revenue generating activities in the US. Shown as wholly owned by Company A in 2016 and 2017 Audited Financials.


Aside from the obvious group composition disclosure and control issue.

Question- If Company B is the intermediate parent and senior US based legal entity of Company(s) C&D. In order for Company A to produce consolidated financials, wouldn't Company B still be required to produce it's own consolidated statements and itself be required to file State and Federal tax returns reporting for it's US based Activities???

 

[Zigner]

How are you involved and why do you care?

 

[Andy_in_KC]

A shareholder.

 

[Zigner]

A shareholder.

Congratulations - I'm a shareholder of many companies as well.

Now, back to the question: How are you involved and why do you care?

 

[Andy_in_KC]

I am putting together a complaint for submission to OIG

 

[Zigner]

I am putting together a complaint for submission to OIG

In Canada?

 

[Andy_in_KC]

Do you any relevant material input or not?

 

[quincy]

I am putting together a complaint for submission to OIG

Why OIG? What is your complaint?

 

[Zigner]

Your question is too broad for an internet forum to answer. NONE of us is privy to the business organization of the anonymous Canada-based company or its subsidiaries. Please feel free to speak with an attorney specializing in business law, tax law, and international law.

 

[davew9128]

The question of financial statement reporting is based on GAAP and is not a legal or tax question. The question about consolidated US tax reporting is that no it is not required unless they choose to do so.

 

[Taxing Matters]

Question- If Company B is the intermediate parent and senior US based legal entity of Company(s) C&D. In order for Company A to produce consolidated financials, wouldn't Company B still be required to produce it's own consolidated statements and itself be required to file State and Federal tax returns reporting for it's US based Activities???

You did not indicate what kind of entities companies C & D are, and that matters for the purpose of answering the question of what tax returns the U.S. entities must file in the U.S. However, as Company B is apparently a corporation organized in Delaware and wholly owned by a publicly traded Canadian company (though again you did not indicate what kind of company) Company B would not qualify for an S-corporation election and thus would be treated for U.S. federal income tax purposes as a C-corporation. All C-corporations must file a U.S. federal income tax return, Form 1120, for each tax year as long as they are in existence no matter how much taxable income they have. If companies C & D are also U.S. corporations then B, C, & D may elect to file a single consolidated U.S. federal income tax return. However, for an inactive domestic parent with just two subsidiary corporations it would be unusual for them to elect to file consolidated returns. As far as state income taxes, the details of each company — what kinds of entities they are, in what states each are organized, what kinds of businesses they are and in what states they do the various parts of their business matter as to which states each one must file and whether any consolidated returns would be required.

As for the question about reporting "consolidated financials" for Company A, you did not specify what reporting requirements you are asking about. The requirements of some stock exchange? The filing requirements for the Canada Revenue Agency (CRA)? The public or shareholder reporting requirements of some Canadian stock regulator? Something else? And who is the OIG? There are several entities those initials could fit. This board covers issues of U.S. So if the question is about the requirements of a Canadian exchange or regulator then you are unlikely to get an answer about that here.