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During its 10 January 2018 board meeting, the Financial Accounting Standards Board (FASB) discussed the application of tax reform as it relates to ASC 740, Accounting for Income Taxes. Included in the discussion were items such as tax effects of accumulated other comprehensive income, discounting of taxes associated with deemed repatriation and refunds of AMT credit carryforwards, and accounting for global intangible low-taxed income and base-erosion anti-abuse tax. Final guidance is expected in the coming months, as the FASB will issue an exposure draft with a comment period of 15 days to follow. Alvarez and Marsal, Taxand USA, provides a breakdown.
Why did FASB act so quickly in its commentary? Just in time for the new year — and the new wave of reporting obligations under the Tax Cuts and Jobs Act of 2017 — the Securities and Exchange Commission (SEC) issued guidance that will give companies some flexibility as they prepare their annual and quarterly financial statements.
While this guidance applies to all aspects of the new tax law, it will be of particular use for US-based multinational companies in computing the taxes arising from the one-time deemed repatriation of their historical foreign earnings accumulated offshore (the toll charge). This analysis will often require extensive evaluations and computations for each specified foreign corporation’s earnings and profits (E&P) and tax pools — a task that could prove challenging on such short notice.
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The much-debated Tax Cuts and Jobs Act was signed into law on 22 December 2017, ushering in the new year with a host of new tax rules and a tight timeframe for computing and analysing the tax effects of the new law. Acknowledging the difficulties that companies may face in preparing accurate financial statements in this compressed timeframe, the SEC has provided relief in the form of SAB 118, which allows companies an extended measurement period during which they can make reasonable estimates as to tax effects and refine those estimates as they complete their analyses.