Overseas Tax Liability Continues to Confuse U.S. Companies

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By Steven Marcy

Dec. 6 — Securities and Exchange Commission accountants continue to encounter uncertainty among multinational companies when they assess whether they should book a tax liability for a parent company from undistributed income earned overseas, an SEC accounting fellow told an accounting conference.

SEC accounting guidance presumes “undistributed earnings of a subsidiary will be transferred to the parent entity, resulting in the parent entity accruing taxes on the undistributed earnings,” SEC accounting fellow Brian Staniszewski told the American Institute of CPAs’ annual SEC and PCAOB developments conference.

However, Staniszewski also said Dec. 5 presumption of a tax liability for a parent company “can be overcome, and no income taxes would be accrued by the parent entity, if certain criteria are met.” That criteria must include “evidence of specific plans for reinvestment of undistributed earnings of a subsidiary which demonstrate that remittance of the earnings will be postponed indefinitely,” according to a footnote in the prepared text of Staniszewski’s conference remarks.

“This continues to be an area involving a significant amount of judgment, " Staniszewski told the conference. “We have questioned registrants in situations where disclosures made outside of the audited financial statements call into question (or potentially contradict) assumptions relied upon in accounting for undistributed earnings” under Financial Accounting Standards Board rules governing income taxes, ASC 740

To contact the reporter on this story: Steven Marcy in Washington at smarcy@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

For More Information

Staniszewski’s prepared remarks are at https://www.sec.gov/news/speech/staniszewski-2016-aicpa.html.

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