There are no special provisions for taxation of companies in a group in Sri Lanka. Each company is taxed independently of others in the group.
Any income, gains, and profits arising, derived, or accruing from, or any loss incurred in, any transaction entered into between two associated enterprises shall be ascertained with regard to the arm’s-length price.
Interest payments (financial cost) made to any person are restricted to the debt-to-equity ratio of 3:1 for manufacturing companies and 4:1 for other companies. Any excess amount of finance costs arising due to this restriction can be carried forward and treated as incurred during any of the following six years of assessment, subject to the above limitation.
However effective from1 April 2021, under the Inland Revenue (Amendment) Act No 10 of 2021, debt to equity ratio of 4:1 for all companies will apply.
Controlled foreign companies (CFCs)
There are no provisions in the tax statute regarding CFCs.