IFRS vs US GAAP Taxation

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IFRS vs US GAAP Taxation – Both US GAAP and IFRS base their deferred tax accounting requirements on balance sheet temporary differences, measured at the tax rates expected to apply when the differences reverse. Discounting of deferred taxes is also prohibited under both frameworks. Although the two frameworks share many fundamental principles, they are at times applied in different manners and there are different exceptions to the principles under each framework.

This may result in differences in income tax accounting between the two frameworks. Some of the more significant differences relate to the allocation of tax expense/benefit to financial statement components (“intraperiod allocation”), income tax accounting with respect to share-based payment arrangements, and some elements of accounting for uncertain tax positions. Recent developments in US GAAP and IFRS will eliminate or reduce certain of these differences, as discussed below.

The relevant differences are set out below, other than those related to share-based payment arrangements, which are described in the Expense recognition—share-based payments chapter.

Standards Reference

US GAAP1

IFRS2

ASC 740 Income taxes

IAS 1 Presentation of Financial Statements

IAS 12 Income taxes

IAS 34 Interim Financial Reporting

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IFRIC 23 Uncertainty over Income Tax Treatments

Note

The following discussion captures a number of the more significant GAAP differences. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

Hybrid taxes

Hybrid taxes are based on the higher or lower of a tax applied to (1) a net amount of income less expenses, such as taxable profit or taxable margin, (generally considered an income tax) and (2) a tax applied to a gross amount, such as revenue or capital, (generally not considered income taxes). Hybrid taxes are assessed differently under the two frameworks, which could lead to differences in presentation in the income statement and recognition and measurement of deferred taxes.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

Taxes based on a gross amount are not accounted for as income taxes and should be reported as pre-tax items. A hybrid tax is considered an income tax and is presented as income tax expense only to the extent that it exceeds the tax based on the amount not considered income in a given year.

Deferred taxes should be recognized and measured according to that classification.

Accounting for hybrid taxes is not specifically addressed within IFRS.

Applying the principles in IAS 12 to the accounting for hybrid taxes, entities can adopt either one of the following approaches and apply it consistently:

  • Designate the tax based on the gross amount not considered income as the minimum amount and recognize it as a pre-tax item. Any excess over that minimum amount would then be reported as income tax expense; or

  • Designate the tax based on the net amount of income less expenses as the minimum amount and recognize it as income tax expense. Any excess over that minimum would then be reported as a pre-tax item.

  • Deferred taxes should be recognized and measured according to the classification chosen.

Tax base of an asset or a liability

Under IFRS, a single asset or liability may have more than one tax base, whereas there would generally be only one tax base per asset or liability under US GAAP.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

Tax base is based upon the relevant tax law. It is generally determined by the amount that is depreciable for tax purposes or deductible upon sale or liquidation of the asset or settlement of the liability.

Tax base is based on the tax consequences that will occur based upon how an entity is expected to recover or settle the carrying amount of assets and liabilities.

The carrying amount of assets or liabilities can be recovered or settled through use or through sale.

Assets and liabilities may also be recovered or settled both through use and sale. In that case, the carrying amount of the asset or liability is bifurcated, resulting in more than a single temporary difference related to that item.

Exceptions to these requirements include:

  • A rebuttable presumption exists that investment property measured at fair value will be recovered through sale.
  • Non-depreciable assets measured using the revaluation model in IAS 16 are presumed to be recovered through sale.

Taxes – initial recognition of an asset or a liability

In certain situations, there will be no deferred tax accounting under IFRS that would exist under US GAAP and vice versa.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

A temporary difference may arise on initial recognition of an asset or liability. In asset purchases that are not business combinations, a deferred tax asset or liability is recorded with the offset generally recorded against the assigned value of the asset. The amount of the deferred tax asset or liability is determined by using a simultaneous equations method.

An exemption exists from the initial recognition of temporary differences in connection with transactions that qualify as leveraged leases under the historical lease-accounting guidance in ASC 840.

While the new lease guidance in ASC 842 does not permit any new leases to be classified as leveraged leases, existing leases that met the definition in ASC 840 at inception are grandfathered and, assuming they are not modified, continue to follow the prior accounting.

An exception exists that deferred taxes should not be recognized on the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable profit/loss at the time of the transaction.

No special treatment of leveraged leases exists under IFRS.

Recognition of deferred tax assets

The frameworks take differing approaches to the recognition of deferred tax assets. However, it would be expected that net deferred tax assets recorded would be similar under both standards.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

Deferred tax assets are recognized in full, but then a valuation allowance is recorded if it is considered more likely than not that some portion of the deferred tax assets will not be realized.

Deferred tax assets are recognized to the extent that it is probable (or “more likely than not”) that sufficient taxable profits will be available to utilize the deductible temporary difference or carry forward of unused tax losses or tax credits.

Deferred taxes for outside basis differences

Differences in the recognition criteria surrounding undistributed profits and other outside basis differences could result in differences in recognized deferred taxes under IFRS.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

With respect to undistributed profits and other outside basis differences, different requirements exist depending on whether they involve investments in subsidiaries, joint ventures, or equity investees.

As it relates to investments in domestic subsidiaries, deferred tax liabilities are required on undistributed profits arising after 1992 unless the amounts can be recovered on a tax-free basis and the entity anticipates utilizing that method.

As it relates to investments in domestic corporate joint ventures, deferred tax liabilities are required on undistributed profits that arose after 1992.

No deferred tax liabilities are recognized on undistributed profits and other outside basis differences of foreign subsidiaries and corporate joint ventures that meet the indefinite reversal criterion.

Deferred taxes are generally recognized on temporary differences related to investments in equity investees.

US GAAP contains specific guidance on how to account for deferred taxes when there is a change in the status of an investment. If an investee becomes a subsidiary, the temporary difference for the investor’s share of the undistributed earnings of the investee prior to the date it becomes a subsidiary is “frozen” and continues to be recognized as a temporary difference for which a deferred tax liability will be recognized.

If a foreign subsidiary becomes an investee, the amount of outside basis difference of the foreign subsidiary for which deferred taxes were not provided on the basis of the indefinite reversal exception is effectively “frozen” until the period in which it becomes apparent that any of those undistributed earnings (prior to the change in status) will be remitted.

US GAAP notes that the change in status of an investment would not by itself mean that remittance of those undistributed earnings is considered apparent.

Deferred tax assets for investments in subsidiaries and corporate joint ventures may be recorded only to the extent they will reverse in the foreseeable future.

With respect to undistributed profits and other outside basis differences related to investments in foreign and domestic subsidiaries, branches and associates, and interests in joint arrangements, deferred tax liabilities are recognized except when a parent company, investor, joint venturer or joint operator is able to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The general guidance regarding deferred taxes on undistributed profits and other outside basis differences is applied when there is a change in the status of an investment.

Deferred tax assets for investments in foreign and domestic subsidiaries, branches and associates, and interests in joint arrangements are recorded only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

IFRS vs US GAAP Taxation

Deferred taxes for exchange rate changes or tax indexing

US GAAP prohibits the recognition of deferred taxes on exchange rate changes and tax indexing related to non-monetary assets and liabilities in a foreign currency while it may be required under IFRS.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

No deferred taxes are recognized for differences related to non-monetary assets and liabilities that are remeasured from local currency into their functional currency by using historical exchange rates (if those differences result from changes in exchange rates or indexing for tax purposes).

Deferred taxes should be recognized for the difference between the carrying amount determined by using the historical exchange rate and the relevant tax base, which may have been affected by exchange rate changes or tax indexing.

Uncertain tax positions

In June 2017, the IFRS Interpretations Committee issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments, which clarifies how the recognition and measurement requirements should be applied when there is uncertainty over income tax treatments. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019 with earlier adoption permitted.

Differences with respect to recognition, unit-of-account, measurement, the treatment of subsequent events, and treatment of interest and penalties may result in different outcomes under the two frameworks.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

ASC 740-10-25 Uncertain tax positions are recognized and measured using a two-step process:

  1. determine whether a benefit may be recognized and
  2. measure the amount of the benefit.

Tax benefits from uncertain tax positions may be recognized only if it is more likely than not that the tax position is sustainable based on its technical merits.

Tax assets or liabilities arising from uncertain tax treatments should be assessed using a “probable” recognition threshold.

Uncertain tax positions are evaluated at the individual tax position level.

An entity is required to assess whether to consider individual uncertainties separately or collectively based on which method better predicts the resolution of the uncertainty.

The tax benefit is measured by using a cumulative probability model: the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement.

For those items that meet the probable recognition threshold, an entity is required to measure the impact of the uncertainty using the method that better predicts the resolution of the uncertainty: either the most likely amount method or the expected value method.

Relevant developments affecting uncertain tax positions after the balance sheet date but before issuance of the financial statements (including the discovery of information that was not available as of the balance sheet date) would be considered a non-adjusting subsequent event for which no effect would be recorded in the current-period financial statements.

Relevant developments affecting uncertain tax positions occurring after the balance sheet date but before issuance of the financial statements (including the discovery of information that was not available as of the balance sheet date) would be considered either an adjusting or non-adjusting event depending on whether the new information provides evidence of conditions that existed at the end of the reporting period.

Interest and penalties

The income statement classification of interest and penalties related to uncertain tax positions (either in income tax expense or as a pre-tax item) represents an accounting policy decision that is to be consistently applied.

Interest and penalties

An entity needs to consider the specific nature of interest and penalties to determine whether they are income taxes or not. If a particular amount is an income tax, the entity should apply IAS 12 to that amount. Otherwise, the entity should apply the contingency guidance under IAS 37. This determination is not an accounting policy choice.

Special deductions, investment tax credits, and tax holidays

US GAAP has specific guidance related to special deductions and investment tax credits, generally grounded in US tax law. US GAAP also addresses tax holidays. IFRS does not specify accounting treatments for any specific national tax laws and entities instead are required to apply the principles of IAS 12 to local legislation.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

Special deductions

Several specific deductions under US tax law have been identified under US GAAP as special deductions. Special deductions are recognized in the period in which they are claimed on the tax return.

Entities subject to graduated tax rates should evaluate whether the ongoing availability of special deductions is likely to move the entity into a lower tax band which might cause deferred taxes to be recorded at a lower rate.

Special deductions

Special deductions are not defined under IFRS but are treated in the same way as tax credits. Tax credits are recognized in the period in which they are claimed on the tax return, however certain credits may have the substantive effect of reducing the entity’s effective tax rate for a period of time.

The impact on the tax rate can affect how entities should record their deferred taxes. In other cases the availability of credits might reduce an entity’s profits in a way that moves it into a lower tax band, and again this may impact the rate at which deferred taxes are recorded.

Investment tax credits

It is preferable to account for investment tax credits using the “deferral method” in which the entity spreads the benefit of the credit over the life of the asset. However, entities might alternatively elect to recognize the benefit in full in the year in which it is claimed (the “flow-through method”).

Investment tax credits

IAS 12 states that investment tax credits are outside the scope of the income taxes guidance. IFRS does not define investment tax credits, but we believe that it is typically a credit received for investment in a recognized asset.

Depending on the nature of the credit it might be accounted for in one of three ways:

  • In the same way as other tax credits;
  • As a government grant under IAS 20; or
  • As an adjustment to the tax base of the asset to which the initial recognition exception is likely to apply.

Tax holidays

Deferred taxes are not recorded for any tax holiday but rather the benefit is recognized in the periods over which the applicable tax rate is reduced or that the entity is exempted from taxes. Entities should, however, consider the rate at which deferred taxes are recorded on temporary differences.

Temporary differences expected to reverse during the period of the holiday should be recorded at the rate applicable during the holiday rather than the normal statutory income tax rate.

Tax holidays

While IFRS does not define a tax holiday, the treatment is in line with US GAAP in that the holiday itself does not create deferred taxes, but it might impact the rate at which deferred tax balances are measured.

Taxes – intercompany transfers of inventory

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory, which eliminates the exception for the recognition of taxes on intercompany transfers of assets in the prior US GAAP guidance. The new guidance does not apply to transfers of inventory, and thus a difference remains between US GAAP and IFRS with regard to intra-entity inventory transactions.

The guidance was effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years. For entities other than public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, but only in the first interim period of a fiscal year.

The frameworks require different approaches when current and deferred taxes on intercompany transfers of inventory are considered.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

For purposes of the consolidated financial statements, any tax impacts to the seller as a result of an intercompany sale or transfer of inventory are deferred until the asset is sold to a third-party or otherwise recovered (e.g., written down).

In addition, the buyer is prohibited from recognizing a deferred tax asset resulting from the difference between the tax basis and consolidated carrying amount of the inventory.

There is no exception to the model for the income tax effects of transferring assets between the entities in the consolidated groups. Any tax impacts to the consolidated financial statements as a result of the intercompany transaction are recognized as incurred.

If the transfer results in a change in the tax base of the asset transferred, deferred taxes resulting from the intragroup sale are recognized at the buyer’s tax rate.

Change in tax laws and rates

The impact on deferred and current taxes as a result of changes in tax laws and tax rates may be recognized earlier under IFRS.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

For jurisdictions that have a tax system under which undistributed profits are subject to a corporate tax rate higher than distributed profits, effects of temporary differences should be measured using the undistributed tax rate.

Tax benefits of future tax credits that will be realized when the income is distributed cannot be recognized before the period in which those credits are included in the entity’s tax return.

A parent company with a subsidiary entitled to a tax credit for dividends paid should use the distributed rate when measuring the deferred tax effects related to the operations of the foreign subsidiary.

However, the undistributed rate should be used in the consolidated financial statements if the parent, as a result of applying the indefinite reversal criteria, has not provided for deferred taxes on the unremitted earnings of the foreign subsidiary.

For jurisdictions where the undistributed rate is lower than the distributed rate, the use of the distributed rate is preferable but the use of the undistributed rate is acceptable provided appropriate disclosures are added.

Where income taxes are payable at a higher or lower rate if part or all of the net profit or retained earnings are distributed as dividends, deferred taxes are measured at the tax rate applicable to undistributed profits.

In consolidated financial statements, when a parent has a subsidiary in a dual-rate tax jurisdiction and expects to distribute profits of the subsidiary in the foreseeable future, it should measure the temporary differences relating to the investment in the subsidiary at the rate that would apply to distributed profits.

This is on the basis that the undistributed earnings are expected to be recovered through distribution and the deferred tax should be measured according to the expected manner of recovery.

Taxes – presentation

Presentation differences related to uncertain tax positions could affect the calculation of certain ratios from the face of the balance sheet (including an entity’s current ratio).

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

liability for uncertain tax positions is classified as a current liability only to the extent that cash payments are anticipated within 12 months of the reporting date. Otherwise, such amounts are reflected as non current liabilities.

A liability for an unrecognized tax benefit should be presented as a reduction to a deferred tax asset for a net operating loss or tax credit carry forward if the carry forward is available at the reporting date to settle any additional income taxes that would result from the disallowance of the uncertain tax position.

Netting would not apply, however, if the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the carry forward for such purpose.

A liability for uncertain tax positions relating to current or prior year returns is generally classified as a current liability on the balance sheet because entities typically do not have the unconditional right to defer settlement of uncertain tax positions for at least 12 months after the end of the reporting

period.

There is no specific guidance under IFRS on the presentation of liabilities for uncertain tax positions when a net operating loss carry forward or a tax credit carry forward exists. The general guidance in IAS 12 on the presentation of income taxes applies.

Taxes – intraperiod allocation

Differences can arise in accounting for the tax effect of a loss from continuing operations. Subsequent changes to deferred taxes could result in less volatility in the statement of operations under IFRS.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The tax expense or benefit is allocated between the financial statement components (such as continuing operations, discontinued operations, other comprehensive income, and equity) following a “with and without” approach:

  • First, the total tax expense or benefit for the period is computed,
  • Then the tax expense or benefit attributable to continuing operations is computed separately without considering the other components, and
  • The difference between the total tax expense or benefit for the period and the amount attributable to continuing operations is allocated among the other components.

An exception to that model requires that all components be considered to determine the amount of tax benefit that is allocated to a loss from continuing operations.

Subsequent changes in deferred tax balances due to enacted tax rate and tax law changes are taken through profit or loss regardless of whether the deferred tax was initially created through profit or loss or other comprehensive income, through equity, or in acquisition accounting.

The same principle applies to changes in assertion with respect to unremitted earnings of foreign subsidiaries; deferred taxes are recognized in continuing operations even if some of the temporary difference arose as a result of foreign exchange recognized in OCI (with the exception of current-year foreign exchange that is recognized in CTA).

Changes in the amount of valuation allowance due to changes in assessment about realization in future periods are generally taken through the income statement, with limited exceptions for certain equity-related items.

Tax follows the pre-tax item. Current and deferred tax on items recognized in other comprehensive income or directly in equity should be similarly recognized in other comprehensive income or directly in equity.

When an entity pays tax on all of its profits, including elements recognized outside of profit or loss, it can be difficult to determine the share attributable to individual components. Under such circumstances, tax should be allocated on a pro rata basis or other basis that is more appropriate in the circumstances.

Subsequent changes in deferred tax are recognized in profit or loss, OCI, or equity depending on where the transaction(s) giving rise to the deferred tax were recorded. Entities must “backwards trace” based upon how the deferred tax balance arose to determine where the change in deferred tax is recorded.

Taxes – disclosures

The disclosures required by the frameworks differ in a number of respects, but perhaps the two most significant differences relate to uncertain tax positions and the rate used in the effective tax rate reconciliation. Other disclosure differences are largely a consequence of differences in the underlying accounting models.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

Public entities are required to present a tabular reconciliation of unrecognized tax benefits relating to uncertain tax positions from one year to the next.

The effective tax rate reconciliation is presented using the statutory tax rate of the parent company.

Entities with contingent tax assets and liabilities are required to provide IAS 37 disclosures in respect of these contingencies, but there is no requirement for a tabular reconciliation.

The effective tax rate reconciliation can be presented using either the applicable tax rates or the weighted average tax rate applicable to profits of the consolidated entities.

Taxes – interim reporting

A worldwide effective tax rate is used to record interim tax provisions under US GAAP. Under IFRS, a separate estimated average annual effective tax rate is used for each jurisdiction.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

In general, the interim tax provision is determined by applying the estimated annual worldwide effective tax rate for the consolidated entity to the worldwide consolidated year-to-date pre-tax income.

The interim tax provision is determined by applying an estimated average annual effective tax rate to interim period pre-tax income. To the extent practicable, a separate estimated average annual effective tax rate is determined for each material tax jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction.

Taxes – separate financial statements

US GAAP provides guidance on the accounting for income taxes in the separate financial statements of an entity that is part of a consolidated tax group.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The consolidated current and deferred tax amounts of a group that files a consolidated tax return should be allocated among the group members when they issue separate financial statements using a method that is systematic, rational and consistent with the broad principles of ASC 740.

An acceptable method is the “separate return” method. It is also acceptable to modify this method to allocate current and deferred income taxes using the “benefits-for-loss” approach.

There is no specific guidance under IFRS on the methods that can be used to allocate current and deferred tax amounts of a group that files a consolidated tax return among the group members when they issue separate financial statements.

Taxes – share-based payment arrangements

Significant differences in current and deferred taxes exist between US GAAP and IFRS with respect to share-based payment arrangements. The relevant differences are described in the Expense recognition—share-based payments chapter.

Accounting considerations of US tax reform

The Tax Cuts and Jobs Act of 2017 (the 2017 Act) significantly changed many provisions of US tax law, and those tax law changes could have a significant impact on the current and deferred taxes of entities with US operations. In response, the FASB staff issued several FASB Staff Q&As that address accounting for the 2017 Act under US GAAP. The FASB also issued new guidance related to the reclassification of certain tax effects from accumulated other comprehensive income.

Since the FASB guidance is applied only to entities under US GAAP, the accounting impact of the 2017 Act could be different between IFRS and US GAAP in certain areas, as summarized below. Additionally, an entity would need to consider other differences discussed in this publication when considering the accounting impact of the 2017 Act.

– Deemed mandatory repatriation (“toll tax”)

The 2017 Act required a deemed mandatory repatriation of previously undistributed earnings and profits (E&P) of foreign corporations owned by US parents.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The FASB staff concluded that the toll tax liability should not be discounted under US GAAP.

IAS 12 is silent on discounting current tax balances. There is an accounting policy choice of whether to discount the toll tax liability.

– Alternative minimum tax (AMT) credit carry-forwards

The 2017 Act repealed the AMT. AMT credit carry-forwards at January 1, 2018 can now be offset against regular tax, and any remaining balances will be refundable over the next four years. An entity should decide whether to reclassify the AMT credit carry-forwards as a receivable. An entity might classify them as a deferred tax asset if they will be recovered against future tax liabilities, or as a receivable if they will be refunded in cash.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The FASB staff concluded that the AMT credit carryforwards should not be discounted under US GAAP, regardless of the expected manner of recovery.

IAS 12 is silent on discounting current tax balances. There is an accounting policy choice of whether to discount the receivable for AMT credit carry-forwards.

– Base erosion anti-abuse tax (BEAT)

The 2017 Act introduced a new minimum tax on certain international intercompany payments as a means to reduce the ability of multi-national companies to erode the US tax base through deductible related-party payments. The minimum tax, known as BEAT, is imposed when the tax calculated under BEAT exceeds an entity’s regular tax liability determined after the application of certain credits allowed against the regular tax.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The FASB staff concluded that temporary differences should be measured at regular statutory tax rates versus considering the impact of BEAT in determining the rate expected to apply. Therefore, the effects of BEAT should be recognized as a period cost when incurred versus being considered in the measurement of deferred taxes.

No specific guidance related to BEAT exists under IFRS. It would be acceptable for an entity to measure deferred taxes at the regular statutory tax rate and account for the effects of BEAT in the year in which they are incurred.

The FASB staff also concluded that an entity does not need to evaluate the effect of potentially paying the BEAT tax in future years on the realization of deferred tax assets.

While not required, it is reasonable to assume that companies may elect to do so.

There is no similar guidance under IFRS on the potential impact of BEAT on the realizability of deferred tax assets.

– Global intangible low-taxed income (GILTI)

The 2017 Act introduced a new tax on certain global intangible low-taxed income (GILTI) of a US shareholder’s controlled foreign corporations. The GILTI inclusion will be part of the entity’s taxable income for US tax purposes each year.

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

The FASB staff concluded that an entity that is subject to GILTI must make an accounting policy election to either treat GILTI as a period cost, or to record deferred taxes for basis differences that are expected to reverse as GILTI in future years.

It would be acceptable to recognize any taxes for GILTI as a period cost when GILTI is included on the tax return. It would also be acceptable to reflect the impact of the GILTI inclusion in the tax rate used to measure deferred taxes for temporary differences expected to reverse as GILTI. Judgment will be required to determine which approach is more appropriate.

– Foreign derived intangible income (FDII)

The 2017 Act introduced an additional deduction for US companies that produce goods and services domestically and sell them abroad, known as foreign derived intangible income (FDII).

IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation IFRS vs US GAAP Taxation

US GAAP

IFRS

It seems logical to account for FDII as a special deduction.

Under US GAAP, special deductions are recognized in the period in which they are included in the tax return, instead of being reflected in the measurement of deferred taxes (refer to Special deductions, investment tax credits, and tax holidays).

IFRS does not address special deductions. It would be acceptable to recognize FDII in the period in which the deduction is included in the tax return. It might also be acceptable to reflect the impact in the measurement of deferred taxes on temporary differences that will be subject to FDII upon reversal.

See also: The IFRS Foundation

IFRS vs US GAAP Taxation

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