Accounting for Income Taxes - Multinationals Flashcards
When is income from a foreign sub included on the GAAP income statement
the period it is earned - assumes all income will eventually be returned to the parent
When is the income from a foreign sub included on the US tax return
remitted to the US via a dividend payment,
implied distribution in the case of subpart F income (passive income)
Does the timing of the payment of taxes on foreign income affect the income statement or the balance sheet
Balance sheet - deferred tax vs current tax
What is the exception to booking a deferred tax expense for foreign sub income not remitted to the US
permanently reinvested earnings (PRE) - there is “sufficient evidence” that the income has been/will be completely reinvested in the foreign country
How are permanently reinvested earnings recorded for GAAP purposes
- Not included in the total tax expense on the income statement for GAAP
- NO corresponding liability for future net US tax is recorded
How do you compute Deemed FTC
Dividend/Undistributed Accum E&P * Income Taxes Paid (foreign)
What disclosures are required for foreign subsidiary income
- components of pretax income (foreign vs. US)
- components of tax expense (deferred/current + foreign/US)
- reconciliation of tax rate ($ or %)
What adjustment needs to be made to tax return income if no dividend is distributed by foreign sub
Need to adjust income to remove foreign income from the tax return that will be included in the current period for GAAP - deferred tax expense will go up, no effect on total tax expense for GAAP
What is the effect on the timing of taxes if a company does not repatriate foreign income to US in the form of a dividend
more deferred tax expense, less current tax expense, but total tax expense for GAAP remains the same
what is the DTL for tax differences if a company does not repatriate income to the US
DTL - net US tax on foreign earnings = the net US tax calculated in step one of the problem
= total tax on foreign income: foreign income * total tax rate
how is GAAP taxable income calculated when there is foreign sub income
foreign dividend amount + grossed up for foreign tax (deemed FTC)
What are the components of the total tax expense for GAAP when there is a foreign sub
foreign income tax + US tax (net FTC)
What 2 questions are necessary when computing the amount of foreign tax for GAAP purposes
- how much need
- when is it paid
