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Earnings on Foreign Subsideries

In: Business and Management

Submitted By Seattles
Words 590
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U.S. Generally Accepted Accounting Principles (GAAP) and International financial reporting standards (IFRS) are the accounting principles that all companies must abide by in the US (GAAP) and internationally (IFRS). Golf-Travel Inc wants gather information about the tax issues related to their foreign subsidiaries. By researching through the codification, we find the different issues pertaining to their earnings from their global operations. Specifically, the answers to the issue that involves the company’s different financial reporting of remitting earning back to U.S vs. reinvesting into the Irish Subsidiary.

In the codification, it explains that undistributed earnings will be repatriated back to the U.S. parent company and be taxed , “It shall be presumed that all undistributed earnings of a subsidiary will be transferred to the parent entity (ASC 740-30-25-3)”. However, the company finds that there is an exception to this rule. The exception is that if the company provides evidence of indefinitely reinvesting the undistributed earnings. In ASC 740-30-25-17 it explains this in detail , “ The presumption in paragraph 740-30-25-3 that all undistributed earnings will be transferred to the parent entity may be overcome, and no income taxes shall be accrued by the parent entity, for entities and periods identified in the following paragraph if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation. A parent entity shall have evidence of specific plans for reinvestment of undistributed earnings of a subsidiary which demonstrate that remittance of the earnings will be postponed indefinitely. These criteria required to overcome the presumption are sometimes referred to as the indefinite reversal criteria. Experience of the entities and…...

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