As stated in Art. 85 of the TC, a taxpayer’s tax obligation is the obligation imposed on him by tax legislation to correctly calculate and timely pay taxes and levies.

The obligation imposed on tax representatives by tax legislation to correctly calculate, withhold and pay taxes in a timely manner, for which these persons are recognized as tax representatives, is equivalent to a tax obligation.

3.1. Credit and refund of overpayments and overcharges.

The crediting and refunding of overpaid taxes with respect to the CTG is carried out on the basis of the general rules set forth in Art. 103, 104, and 105 of the TC, taking into account the special rules.

In this case, the special rules are considered to be parts 10 and 11 of the Art. 104 of the TC and parts 8,9 of the Art. 105 of the TC. In accordance with these rules, the amounts of overcharged or overpaid income taxes are refunded to the responsible participant of a CTG, in case of termination of the agreement on the establishment of a CTG are subject to set-off or refunded to the legal entity that was the responsible participant if this CTG, upon its written request.

3.2. Peculiarities of the application of certain methods of securing the fulfillment of a tax obligation in respect of CTG.

Chapter 13 of the TC provides for the following methods of securing a tax obligation:

pledge of property;
surety;
bank guarantee;
penalties;
blocking of bank accounts;
attachment of property.

3.2.1. Suspension of operation on bank accounts of CTG participants.

Suspension of operations on bank accounts is carried out on the basis of general rules established in Art. 111 of the TC, with a decision of the head of the tax authority for a period of up to 10 days. In order to suspend bank operations for more than 10 days, a court decision is required.

There are 4 cases in which operation on bank accounts are suspended:

failure of the taxpayer (tax agent) to submit financial and (or) tax reports to the tax authority within 10 days of the expiry of the established deadline for submitting such reports;
failure of the taxpayer (tax agent) to provide explanations and (or) corrections in response to the tax authority’s request regarding the results of a tax audit, as well as failure to provide documents requested by the tax authority within the established deadline;
obstructing the access of officials of tax authorities conducting a tax audit to the specified areas or premises (except for residential premises). Obstructing the access of a tax authority official is formalized by an act signed by the tax authority official and the audited person. On the basis of such an act, the tax authority shall suspends operations on bank accounts;
absence of a taxpayer (tax representative) at the place of his declared address.

As the responsible participant is required to keep records, calculate and pay income tax on CTG, it is this person who is subject to account suspension.

If the reason for suspending operations on bank accounts is the failure of the responsible participant of a CTG to submit the tax return within 10 days of the established deadline for its submission, the tax authority has the right to suspend operations on bank accounts not only of the responsible participant, but also of all participants of this CTG.

3.3. Collection of tax debts from participants of CTG.

Collection of a tax debt from a taxpayer is carried out in case of failure or incomplete fulfillment of the obligation to repay the tax debt within the established term, on the basis of general provisions specified in Chapter 15 of the TC. The tax debt is collected from bank accounts and other property. Money in bank accounts is collected on the basis of a collection order issued by the tax authority to the taxpayer’s bank. Other property is collected by court order and may be collected on the basis of a decision of the head of the authority if the taxpayer acknowledges the debt.

3.3.1. Collection of tax debts from bank accounts of CTG participants.

In accordance with Art. 121of the TC, the collection of income tax debts from the bank accounts of CTG participants is carried out on the basis of a collection order, taking into account the particularities specified in Art. 122 of the TC.

Pursuant to Art. 116 of the TC, the request for repayment of income tax arrears is sent to the responsible participant of the CTG. Pursuant to Art. 122 of the TC, if the demand is not met, the funds in the bank accounts of the responsible participant will be collected first. If the funds of the responsible participant are not sufficient to recover the full amount of the tax debt, the remaining amount will be recovered from the bank accounts of the other participants in the CTG.

The tax authority independently determines, on the basis of the information it has on the taxpayers, the composition of the participant of a CTG from whose bank account the funds will be recovered, as well as the order of recovery from these participants in the event of insufficient funds in the bank accounts of the previous participants.

If a tax debt has been repaid in full or in part by one of the participants of in a CTG, the procedures for the collection of the said tax debts shall be terminated in the amount of the part repaid by this participant.

3.3.2. Collection of tax debts from other property of CTG participants.

The collection of tax debts from other property of CTG participants is carried out on the basis of Art. 123 of the TC, taking into account the provisions of Art. 124 of the TC. According to the general provisions of Art. 123 of the TC, the taxpayer’s property is seized on the basis of a court decision or a decision by the head of the tax authority, if a court decision or a decision by the head of the tax authority, if the taxpayer has acknowledged the dept.

Pursuant to Art. 123 of the TC, collection is carried out strictly in the following order:

cash and funds in bank accounts that have not been recovered;
property not directly related to the share of products (goods), in particular securities, currency, non-production premises, cars, office equipment;
finished products (goods), as well as other tangible assets that do not participate and (or) are not intended for direct participation in production;
raw materials and materials intended for direct participation in production, as well as machine tools, equipment, buildings, structures and other fixed assets;
property transferred to other persons under contract for possession, use or disposal, without transferring to them the right of ownership of such property, when such contracts are cancelled or recognized as invalid in order to ensure the fulfillment of the obligation to pay tax;
other property, with the exception of that intended for the daily personal use of the individual entrepreneur or members of his family, determined in accordance with the legislation.

It is not permitted to violate the order of collection.

On the basis of Art. 124 of the TC, the collection of income tax arrears is first applied to the cash funds of the responsible participant of the CTG, if the responsible participant does not have sufficient cash funds, the tax is collected from other participants of this group.

If the responsible participant and the other participant in a CTG do not have sufficient cash funds to repay the tax debt, the recovery is then applied to other assets of the responsible participant. In this case, the recovery is carried out on the basis of the above-mentioned sequence, starting from the 2^nd para. and ending with the 6^th para.

If the assets of the responsible participant of a CTG are not sufficient to repay the tax debt, the tax shall be collected from the other assets of the other participants of this group in the above order.

The tax authority shall independently determine, on the basis of the information available to it on the taxpayers, the composition of the participants in a CTG from whose other assets the tax debt is to be recovered, and the order of recovery from these participants in the event of insufficiency of the assets of the previous participant.

Chapter 4. Income tax.

The purpose of establishing a CTG is to consolidate the tax base for income tax, its calculation and payment, taking into account into the aggregate financial result. Accordingly, a responsible participant of a CTG is considered to be an income taxpayer pursuant to Art. 294 of the TC. The participants of a CTG fulfill their obligations for the CTG income tax to the extent necessary for its calculation by the responsible participant of this group.

The general rules stated in section 12 of the TC are applicable to CTG participants, subject to special provisions.

4.1. Special rules for determining the tax base of income received by participants in a CTG.

Pursuant to Art. 296 of the TC, the tax base for income tax is the amount of taxable profit. In other words, it is the subject of income tax.

When determining the tax base, various types of income may or may not be included in the total income on the basis of special rules. Similarly, some expenses may be deductible and others not. This process is regulated by special rules established in the Tax Code. The tax base may be adjusted in accordance with the procedure established in the Tax Code.

Special rules for determining the tax base of income received by participants in a CTG.

Pursuant to Art. 330 of the TC, the consolidated tax base (hereinafter CTB) is determined on the basis of the amounts of all recognized income and expenses of the participants of a CTG. To this end, each participant provides the responsible participant of a CTG with all the information necessary to calculate the CTB within the time limits laid down in the agreement establishing the CTB. The responsible participant shall calculate the CTB for the reporting period.

The CTB is determined as the sum of the income of all participants of a CTG minus the sum of the expenditure of all its participants, taking into account the provisions of the TC. If the difference is negative, it is recorded as a loss of the CTG.

The CTB does not take into account the income of the participant in the CTG that is subject to withholding tax, as well as the profit of controlled foreign companies whose controlling persons are members of such a group.

According to Art. 316 of the TC, a taxpayer has the right to create reserves for future warranty repair and service expenses, and the expenses incurred in creating such reserves are deductible in forming the tax base. Participants of a CTG do not form such reserves in relation to the sale of goods to other participants of the same group.

If a new participant joins to a CTG, the provisions for future expenses for warranty repairs and warranty services are increased proportionally in respect of goods (works) sold by other participants of this group. Part 9 of Art. 330 of the TC stipulates that the amounts of the reserves for warranty repairs and warranty services that are replenished, including as a result of a reduction in the maximum amount of the reserve, shall be included in the comprehensive income for the tax period preceding the tax period in which the taxpayer became a member of the CTG.

In accordance with Art. 315 of the TC, banks and legal entities carrying out certain types of operations on the basis of a license, as well as insurance companies, may establish reserve funds on the basis of legislation. Contributions to such reserve funds constitute expenses and are deductible. On the basis of Part 10, Art. 330 of the TC, banks that are participants of a CTG do not create such reserves for debts of one participant of a CTG to other participants of the same group. When a new participant joins the group, the banks restore the reserve to the amount of debts related to other participants of this group. Amounts used to restore the reserve are recognized in comprehensive income in the tax period preceding the tax period in which the bank became a participant of a CTG.

A participant of a CTG that has incurred losses in the tax periods preceding the tax period in which it became a member of that group may not reduce its CTB by all or part of the amount of the losses it has incurred or carry forward the losses from the tax period in which it became a member of that group.

The participants of a CTG may not aggregate losses incurred prior to joining the CTG with the CTB; this rule also applies to losses incurred by legal entities that joined the CTG by joining a participant of that group or by merging with a member of such group.

4.2. Special features of the determination of the total income and expenses of the CTG.

When determining the expenses and total income of a CTG, all general rules specified in Chapter 43 and 44 of the TC as well as special rules apply.

As stated in Art. 297 of the TC, total income consists of income received by a legal entity from sources in the Republic of Uzbekistan and abroad during the tax period. The list of incomes constituting total income is contained in Part 3, Art. 297 of the TC.

Art. 305 of the TC establishes that expenses related to the receipt of income are deductive in determining the tax base. Such expenses are those that are justified and documented. Reasonable expenses are economically justified expenses. Pursuant to Part 4, Art. 305 of the TC, in order for expenses to be considered economically justified, they must fulfill the following conditions:

they must be incurred for the purpose of carrying activities aimed at generating income;
they are necessary or serve to maintain or develop the business activity and the link between the costs and the business activity is clearly justified;
the cost must result from legal provisions.

4.2.1. Total income.

According to Art. 297 of the TC, property (services) received free of charge is also included in comprehensive income. Art. 299 of the TC defines what can be considered as gratuitously received property or services. According to the Part 4 of this Art. of the TC, in the case of receiving a loan or financial assistance on a repayable basis without the obligation to pay interest income to the lender, the income of the borrower is determined on the basis of the refinancing rate established by the Capital Bank of the Republic of Uzbekistan on the date of receiving the loan or financial assistance on a repayable basis. A similar rule applies to a loan or financial assistance on a repayable basis if the interest rate is lower than the refinancing rate established by the Central bank.

This means that a loan or financial assistance provided on a repayable basis with no obligation to pay interest to the lender, or at an interest rate below the central bank rate, is considered to be property received free of charge, and property received free of charge is part of comprehensive income.

However, the above rule does not apply where a loan or financial assistance is provided by one participant in a CTG to another participant in same group. Accordingly, in this case, if the lender and the borrower are participants of the same CTG, a loan or financial assistance received without an obligation to an interest income or at an interest rate below the fixed refinancing rate is not considered gratuitously received property and is not included in comprehensive income pursuant to Part 5 of the Art. 299 of the TC.

4.2.2. Expenses.

According to Art. 305 of the TC, when determining the tax base of legal entities for income tax, all expenses related to the receipt of income, except for non-deductible expenses, are deducted from the total income.

Art. 317 of the TC defines the list of non-deductible expenses. According to this list, monetary funds transferred by a participant of a CTG to a responsible participant in that group for the payment of taxes (advanced, current payments, fines, penalties), as well as,monetary funds transferred by a responsible participant of a CTG to participant in that group in connection with the determination of the amounts of taxes (advances, current payments, fines, penalties) payable under that CTG, are not deductible.

Similarly, where funds are transferred between participants in a single CTG for the purpose of paying tax under the CTG or in connection with the determination of tax amounts, including advance payment, current payments, penalties and fines, they are not deductible.

4.3. Transfer of losses.

The general rules set out in Art. 333 of the TC apply to the transfer of losses in relation to a CTG, taking into account the special rules set out in Art. 335 of the TC.

According to Art. 333 of the TC, a loss is recognized as the excess of deductible expenses over total income. If the taxpayer has incurred losses in the previous tax period(s), he has the right to reduce the profit of the current year by the full amount of the loss incurred by him or by a part of this amount.

As stated in Art. 335 of the TC, if a CTG has incurred losses in a previous tax period, the responsible participant has the right to reduce the CTB of the current period by the full amount or by a part of the amount of the loss.

After the withdrawal of a CTG or the dissolution of such a group, participants may not reduce their current year tax base on the basis of loses inured by the group during the period of its operation, but may reduce their current year tax base on the basis of losses incurred before joining the CTG.

In addition, if a participant has been reorganized by merger or consolidation during the period of its participation in a CTG, it has the right, after withdrawal from such a group, to reduce the current tax base on account of losses incurred by the reorganized taxpayer of which it is the legal successor, based on the results of periods in which such reorganized taxpayer were not participating in the CTG, in accordance with Part 4, Art. 335 of the TC.

If participant of a CTG was newly created by a demerger during the period of its participation in the CTG, it has the right, after the withdrawal or termination of the CTG, to reduce the tax base on account of losses incured in the period before joining the CTG, in the amount determined on the basis of the demerger balance sheet.

4.4. Procedure for calculating tax, submitting tax and paying tax in a CTG.

In accordance with Art. 341 of the TC, the responsible participant of a group company must pay the monthly advance payments and the tax calculated at the end of the tax period in the place of registration of the agreement on the establishment of the group company and its separate subdivision.

The responsible participant of a CTG prepares and submits the tax reporting on the CTG at the end of the reference period – not later than the 20^th of the month following the tax period, and at the end of the tax period – not later than the 1^st of March of the year following the expired tax period, in accordance with Art. 339 of the TC.

Where income is received by CTG participant that is not included in the CTB, the participant concerned will submit reports to the tax authority at the place of registration only in relation to the calculation of tax in respect of such income.

Pursuant to Part 6 of Art. 341 of the TC, the amount of the monthly advance payment to be paid by the responsible participant in the first quarter of the tax period following the commencement of the CTG is determined as the sum of the monthly advance payments of all participants in the group to be paid in the third quarter of the tax period preceding the establishment of the group.

If an agreement on the establishment of a CTG is registered after the beginning of a tax period, advance and current payments made by CTG participants should be refunded to the relevant CTG participant on the basis of Part 7 of Art. 341 of the TC.

Based on all of the above, a CTG is established for the purpose of paying consolidated income tax on the basis of an agreement that must be registered with the tax authorities. A CTG is not a separate legal entity. Only legal entities of the Republic of Uzbekistan may be participants, taking into account that entity should directly and/or indirectly participate in the authorized capital of other legal entities and the share of such participation in each such legal entity is not less than 90%.

Participants in the CTG have rights and obligations as set in the TC and the agreement. The responsible participant is a representative of the CTG and is obliged to calculate and pay the CTG’s income tax. In the area of fulfilling tax obligations, the procedure for calculating the tax, submitting tax returns, determining the CTB on the income tax and paying the tax, the general norms of the TC are applied to the CTG, taking into account its special norms.

Consolidated taxation in the Republic of Uzbekistan. Part 2.

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