2.3.4 Interim conclusion: control & integration

In this section the framework conditions of an economic group concept have been established. To be able to conclude that there is a single economic entity, it should first be determined whether there is effective control. The existence of legal or economic control alone is not sufficient. The ultimate parent company should be able to de facto control the business of its subsidiaries. Such an approach best reflects economic reality and contributes to legal form neutrality.

Using the group definition as applied for financial statements would have the advantage that there would be only a limited increase in administrative burden. However, as it is an already existing definition, there would be no room to adjust it for tax purposes. More importantly, opting for this definition would not be desirable as this would mean that tax laws would partially depend on the decisions of an independent, private-sector body (the IASB).

Second, it should be determined whether there is integration between the ultimate parent company and its subsidiaries. There should be a business link between the entities, meaning that the shareholdings are not held solely as a short or long term-investment. If the shareholding is held as a capital asset, with a view to employ it for the benefit of the company in the long run, there is a single entity from an economic perspective.