Accounting for Outside Basis Differences in

Transcript:Accounting for Outside Basis Differences in:
Accounting for Outside Basis Differences in Foreign Investments Bob Gabriel – Deloitte Tax LLP Trisha Hobler – Deloitte Tax LLP Tax Executives Institute May 2, 2017 Houston, Texas Agenda Overview Basis differences in individual assets and liabilities Inside basis differences Each entity has an inventory of temporary differences (differences between financial reporting and tax basis in assets and liabilities) called “inside” basis differences (e.g., PP&E, accruals, bad debt reserves, intangibles) Basis differences in investments Outside basis differences Note: * The stock held by the parent is one of its “inside” assets that can have a different basis for financial reporting and tax and hence represents a temporary difference. The “outside” basis in the investee is the “inside” basis in the hands of the parent. Parent has a basis difference associated with its “outside” basis in its investments Special rules may apply to outside basis differences The “outside” basis difference must be considered even though the investee has already provided deferred taxes on its inside basis differences * Illustrative items that may impact book and/or tax basis Outside basis differences Note: * An entity can have Subpart F income and no book earnings Specific guidance Outside basis differences Overview ASC 740-30 and unremitted earnings General rule — requires a presumption that all undistributed earnings will be repatriated (ASC 740-30-25-3) This is consistent with the broader presumption that all assets will be recovered and liabilities settled at their financial statement reported amount. The presumption may be rebutted provided “sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely” (ASC 740-30-25-17) Note: Although ASC 740-30 repeatedly uses the phrase “unremitted earnings” when discussing the indefinite reversal criterion, ASC 740-30-25-6 and other similar references to “an excess of the amount for financial reporting over the tax basis of an investment” make it clear that the exception applies to the entire outside basis difference (this includes CTA) Overview Applying the ASC 740-10-25-3 exception ASC 740-10-25-3 provides an exception to recognizing a deferred tax liability with respect to an excess of the book over the tax basis of an investment in a foreign subsidiary or certain foreign corporate joint venture unless it becomes apparent that the basis difference will reverse in the foreseeable future Therefore, it is necessary to conclude as to whether it is apparent that the outside basis difference will reverse or “close” in the foreseeable future or whether