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Document Type: ER - Executive Rules & Instructions
Law: KIT (Law No. 2 of 2008 amending Decree No. 3 of 1955)
Decision Number: 49
Year: 2013
Country: 🇰đŸ‡ŧ Kuwait
Official Name: Executive Rule No. 49 Concerning the tax treatment of related companies

Ministry of Finance - Tax Department - 2013 [Executive Rules & Instructions]

Executive Rules and Instructions of Kuwait Income Tax Decree No. 3 of 1955 as amended by law No. 2 of 2008

Executive Rule No. 49 Concerning the tax treatment of related companies

These are companies, which are legally or financially associated, thus creating common interests. This relation affects the tax law compliance whether by dividing the tax burden among them or by tax avoidance, evasion or reduction thereof.

First: The Tax Department is entitled to inspect such companies and verify that the inter-company transactions are conducted on sound bases and not for the purpose of obtaining illegal tax privileges. In such a case, the inter-company transactions of associated companies shall be compared in accordance with what is usually done among companies that are not legally or financially associated.

Below is a statement of the main types of related companies:

  1. Holding or parent company

    It is a company which owns a number of subsidiaries and has the right of control or supervision over them, either due to ownership of the majority of shares in each company or because the Articles of Association stipulates that right.

  2. Subsidiary

    It is a company which belongs to a parent or holding company either because it is wholly owned thereby or under its control and supervision.

  3. Branch

    It is an Incorporated Body fully affiliated to the parent company and has neither legal nor financial independence whether the branch carries out the same activities or others.

  4. Associate (Sister) company

    It is a company in which another company owns a share of the capital ranging from 20% to less than 50% and has substantial influence, but is not a subsidiary as it has no right of control or supervision thereon (Substantial influence shall mean the right to participate in taking decisions related to the financial policies of the investee, but such influence does not reach a point of control or shared control of the policies. Substantial influence includes ownership of more than 20% of the voting rights).

Second: Tax treatment of the activities conducted by related Incorporated Bodies

The integration of activities performed by related Incorporated Bodies is not permitted as each Incorporated Body has its independent legal entity for the purpose of computing the tax due on each Incorporated Body.

Third: Special and exceptional cases relating to the tax treatment of related companies shall be treated separately after consulting the Tax Department in this regard.