Tax loss carry-forward

Q:  I don't think our tax loss carry-forward is correct.

A:  Thanks for your question about the tax loss carry-forward.  I regret that the calculations do not show on your reports because it would be easier to see the effects.

Your parent company's tax bill is based on consolidated income, rather than only the income in the home area.  Taxes paid by subsidiaries constitute a credit to the parent company tax bill.  Current period income is reduced by a tax loss carry-forward, if any, from the previous quarter.

The calculation is easy to see when there is a consolidated net loss, as you had in Year 3, Quarter 1.

Note that this is not the same as the loss in Area 1 ($-206), attributed to the parent company.  The subsidiaries paid $60 tax on $154 income (60/.39).  This income, already taxed to the subsidiary, reduces the consolidated loss.  Adding it back establishes the tax loss carry-forward for the parent:

Then, in Year 3, Quarter 2,

Note that there is a tax loss carry-forward, even though there was a profit of $207 in Area 1, due to the loss in Sereno.

Then, in Year 3, Quarter 3:

In Year 3, Quarter 4 there was a consolidated profit

During Year 4, your firm had a consolidated net profit each quarter, including untaxed profits in Sereno (not taxed because of a peso tax loss carry-forward).  It may be instructive for you to "do the sums" for the first three quarters of Year 4.  At the end of Quarter 3, the tax loss carry-forward was $169 thousand.

For Year 4, Quarter 4: