Part 1 - AL-Tax

International Taxation Handbookpaid between unconnected parties dealing at arm’s length, on terms thatwould have been agreed between unconnected parties.4. The assets dilution ratio, according to which certain expenses related toacquisition of participations generating nontaxable income (capital gainsor dividend) are not deductible for the acquiring company, either by wayof a ratio between taxable and nontaxable income or by a ratio betweenfinancial and nonfinancial assets.In relation to tax treatment of corporate reorganizations, the tax models emergingat the EU level basically are:1. Transactions in which either assets or participations are sold.2. Reorganizations of entities.For transactions of assets, we can identify three different sub-models: Full taxationof gains/losses, and the rollover relief at a financial value model or at taxvalue. With reference to transactions on participations, in addition to these submodels,there is also the participation exemption sub-model, in which gains areexempt and losses are not deductible. In reorganizations of entities, it is possibleto identify two basic sub-models: the Taxation model and the rollover relief (neutrality)model. EU countries that follow a taxation model recognize taxable capitalgains and deductible capital losses resulting from cross-border (or internal)corporate reorganizations, while those countries that follow a neutrality modeldo not recognize taxable capital gains and deductible capital losses resultingfrom reorganization.Finally, in relation to consolidated corporate taxation, the tax models emergingat EU level are:1. Domestic tax consolidation (or fiscal unity), according to which a group ofcompanies that are resident in the same EU country is regarded for taxpurposes as a single taxpayer, so that the profits and losses of the participatingcompanies can be offset against each other.2. Trans-border tax consolidation, which entails that the profits and losses ofa group of companies resident or not resident in the same EU country canbe offset against each other.3. Group contribution, according to which each company belonging to a groupcontinues to file its own tax return and to pay its own taxes, but is allowedto make a contribution to a company with losses. Such a contribution isdeductible for tax purposes in the hands of the former company and taxablein the hands of the latter company, so that profits and losses can be offset. 11222