The tax administration directive 3 D-7-95 dated June 29, 1995 clarifies the VAT regime applicable to certain subsidies linked to the allocation of corporate income tax among companies of a fiscally integrated group. The directive draws attention to the fact that tax sharing agreements between a parent company and its integrated subsidiaries can give the subsidiaries the benefit of the corresponding subsidies, in the form of a payment equal to the tax saving granted to the group for loss-making subsidiaries, or in the form of a reduction of the tax normally due for profit-making subsidiaries. From the tax authorities point of view, these subsidies are not subject to VAT and are not taken into account in calculating the percentage of reduction of the company receiving the subsidy. However, this advantageous solution only applies if two conditions are both met: first, the agreements must be lawful, and secondly, the subsidies must, without exception, correspond to the allocation of corporate income tax among the group members.
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