Accounting for Income Taxes| Quarterly Hot Topics - Deloitte
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Accounting for Income Taxes | October 2021
Accounting for Income Taxes| Quarterly Hot Topics
US Federal
Tax News & Views, published by the Deloitte Tax LLP Tax Policy Group in Washington, DC,
provides a compact, reader-friendly perspective on the latest tax developments coming out In this edition
of Congress affecting businesses and high-wealth individuals.
For updates and perspective on the latest tax developments coming out of Congress please US Federal
subscribe to Tax News and Views.
Federal Periods and Methods
Ways and Means Committee approves budget reconciliation tax
US Multistate
package
International
The US House Ways and Means Committee, the week of 13 September 2021, approved,
almost entirely along party lines, a tax package that calls for significant revenue-raising Accounting Developments
provisions targeting large corporations and high-income individuals to pay for lower- and
middle-class tax relief, bankroll tax breaks, and new spending on traditional physical
infrastructure projects and “human” infrastructure initiatives, and to address climate change.
For additional details, please see the Deloitte article dated September 17, 2021.
Deloitte Tax materials on budget reconciliation available
New resources from Deloitte Tax LLP that look at provisions in the budget reconciliation
legislation being developed by US congressional tax-writing leaders in September 2021 are
available here, dated September 17, 2021.
1
Accounting for Income Taxes | October 2021
Credits and incentives for Federal Periods and Delaware
clean energy, community Methods
development proposed New law codifies practice of
limiting NOLs to amounts
IRS issues procedural guidance
On 10 September and 13 September claimed on federal return
2021, the US House of Representatives for final revenue recognition
Ways and Means Committee released regulations New law limits a Delaware corporate
markups of pieces of the Build Back Better taxpayer’s net operating loss deductions to
Act (Act) (bill number not yet released), a On 12 August 2021, the US IRS released those deductions that were claimed on its
large legislative proposal that is part of the Revenue Procedure (Rev. Proc.) 2021-34 and federal income tax return. Under the new
budget reconciliation proposed legislation. Rev. Proc. 2021-35, which provide guidance law, any net operating loss that exceeds the
The bill includes numerous measures to for a taxpayer to comply with Treasury amount claimed on a corporate taxpayer’s
combat climate change by stimulating Regulations under IRC sections 451(b), federal income tax return is not permitted
the development of clean energy. The bill 451(c), and 1275. Additionally, Rev. Proc. in the calculation of its Delaware corporate
also encourages economic and affordable 2021-34 provides guidance for a taxpayer income tax.
housing and community development, to change its methods of accounting for
among many other credits and incentives certain inventory costs to comply with IRC For additional details, please refer to the
proposals. sections 263A, 461, and 471 if they are made August 13, 2021 edition of State Tax Matters.
in connection with a change in accounting
For additional details, please see Deloitte method to comply with Treas. Reg. sections Florida
tax@hand article dated September 14, 2021. 1.451-3 and/or 1.451-8.
New law updates state
Senators unveil draft bill For additional details, please see Deloitte conformity and contains some
fleshing out details of tax@hand article dated August 16, 2021. decoupling
international tax “framework”
New law updates corporate income tax
US Multistate statutory references in Florida to conform
US Senate Finance Committee Chairman
Ron Wyden, D-Ore., along with Senate to the IRC provisions as in effect on January
Democratic tax writers Sherrod Brown of
Arizona 1, 2021 and decouples from certain federal
Ohio and Mark Warner of Virginia, unveiled tax provisions involving IRC sections 163(j),
Combined reporting of 168(e), and 172.
draft legislation for international tax reform
on August 25, 2021 that provides additional parent and affiliates deemed
necessary to accurately reflect For additional details, please refer to the
detail on proposed changes within the
July 2, 2021 edition of State Tax Matters and
high-level “framework” the trio previously income
the August 20, 2021 edition of State Tax
released in April.
Services provided by a parent company were Matters.
For additional details, please see the Deloitte deemed operational components of the
article dated August 27, 2021. core business embodied in the products and Hawaii
services provided by its unitary affiliates and
thus Arizona combined reporting of overall New law updates state
net income by the parent and the affiliates conformity
was deemed necessary to clearly reflect the
New law updates statutory references to the
taxable income earned by those subsidiaries
IRC providing that references to the IRC in
with Arizona income factors.
Hawaii income tax laws refer to the federal
For additional details, please refer to the law in effect as amended as of December 31,
July 2, 2021 edition of State Tax Matters. 2020.
For additional details, please refer to the
July 2, 2021 edition of State Tax Matters.
2
Accounting for Income Taxes | October 2021
Iowa
Adopted rules reflect state
treatment of interest expense
limitations under IRC section
163(j)
The Iowa Department of Revenue adopted
administrative rules implementing
adjustments to income for Iowa individual
and corporate income and franchise taxes
for interest expense deductions under
IRC section 163(j), which are limited for
federal income tax purposes but which are
permitted in full for Iowa purposes.
For additional details, please refer to the
July 2, 2021 edition of State Tax Matters. New Hampshire Oregon
Louisiana New law lowers rates on BPT Adopted rules implement
and BET Portland metro area’s new
New law extends business profits
carryforwards of some NOLs Recently enacted budget legislation includes
for an indefinite period provisions that lower tax rates under New Adopted administrative rules seek to
Hampshire’s business profits tax (BPT) from implement a new voter-approved business
New law extends the period in which 7.7% to 7.6% and business enterprise tax profits tax that is imposed within the
taxpayers may carry forward certain net (BET) from 0.6% to 0.55%. Portland Metro District with the first annual
operating losses for Louisiana corporate tax returns due by April 15, 2022 for calendar
income tax deduction purposes. For additional details, please refer to the
year filers.
July 2, 2021 edition of State Tax Matters.
For additional details, please refer to the For additional details, please refer to the
July 2, 2021 edition of State Tax Matters. New Jersey July 30, 2021 edition of State Tax Matters.
Maine COVID-19 temporary Texas
suspension period for
New law updates state corporate tax nexus purposes Texas Supreme Court accepts
conformity ends October 1 review of case on sourcing
satellite radio subscription
New law conforms state corporate and The New Jersey Division of Taxation posted
personal income tax references to the IRC
receipts
updated guidance addressing the impact
to the federal IRC as in effect as of April 30, of telecommuting and nexus in light of The Texas Supreme Court granted review
2021. the COVID-19 pandemic, providing that of a 2020 decision involving a satellite radio
its temporary waiver of New Jersey’s subscription service and how to source its
For additional details, please refer to the
corporation business tax nexus standard for subscription receipts for Texas franchise tax
July 9, 2021 edition of State Tax Matters.
employees working in New Jersey as a result purposes.
of the COVID-19 pandemic no longer applies
on and after October 1. For additional details, please refer to the
September 10, 2021 edition of State Tax
For additional details, please refer to the Matters.
August 6, 2021 edition of State Tax Matters.
3
Accounting for Income Taxes | October 2021
Appellate Court says company West Virginia Since 2017, the 139 member countries of
qualified for reduced rate and the inclusive framework have jointly been
COGS Deduction Revised rules reflect newly developing a “two-pillar” approach to
adopted single sales factor and address the tax challenges arising from the
digitalization of the economy. This led to
Under substance over form reasoning, market-based sourcing
a Texas Court of Appeals affirmed that the publication of two detailed “blueprints”
a company engaged in selling business The West Virginia Department of Revenue in October 2020 on potential rules for
equipment through the use of certain has adopted amended state corporation addressing nexus and profit allocation
sales-type leases qualified for the reduced net income tax rules reflecting legislation challenges (Pillar One) and for global
Texas franchise tax rate applicable to entities that adopts a single-sales factor formula, minimum tax rules (Pillar Two). The proposals
primarily engaged in retail or wholesale trade eliminates the sales factor throw-out rule, were updated and simplified by the US Biden
and may include costs related to the sales- and implements market-based sourcing of Administration in April 2021 and formed the
type leases in its cost of goods sold (COGS) certain receipts. basis for the political agreement reached by
deduction. the G7 countries in June 2021.
For additional details, please refer to the
For additional details, please refer to the August 6, 2021 edition of State Tax Matters. For additional details, please see the Deloitte
September 3, 2021 edition of State Tax article dated July 1, 2021.
Matters.
International Australia
Virginia
This compilation is intended to be an Accounting for the revised R&D
New law eliminates $10K overview of major international tax tax incentive
developments during the quarter that
penalty associated with unitary
may have ASC 740 implications. For more In October 2020, the Australian government
combined information reports summaries of other current international announced some long-awaited key changes
income tax news and developments for to the research and development (R&D) Tax
In 2021 Special Session II of General
the current quarter, please refer to the Incentive (RDTI) regime, with most taking
Assembly, the $10,000 penalty associated
additional publications listed at the end of effect for income years commencing on or
with failure to timely file Virginia’s one-time
this section. after July 1, 2021.
unitary combined information report was
stricken from the Code of Virginia. Legislation
was enacted earlier this year requiring some
Multiple Jurisdictions The government chose to backtrack on some
controversial prior proposed amendments,
corporations that are members of a unitary
OECD with the following changes now having taken
business to file an informational report by effect as from July 1, 2021:
July 1, 2021, containing the unitary group’s
Inclusive framework statement
combined net income and tax. • The refundable R&D tax offset is now fixed
agrees taxation of digital
at a premium rate of 18.5% above the
For additional details, please refer to the economy, global minimum rate prevailing corporate tax rate;
August 20, 2021 edition of State Tax Matters. • A single tier intensity threshold mechanism
On July 1, 2021, the G20/OECD Inclusive
now provides a non-refundable R&D tax
Framework on BEPS (“inclusive framework”)
offset basic rate of 8.5%, with a 16.5%
published a statement on the key
premium rate for any expenditure above a
components of global tax reform, agreed by
2% intensity threshold;
130 of its members.
4
Accounting for Income Taxes | October 2021
• Amendments to the claw back and catch- France new guidance regarding intercompany loans
up mechanisms to ensure accuracy; and by a foreign financing company to a German
• A permanent increase in the R&D 2021 Amended finance bill borrower.
expenditure cap from AUD 100 million to becomes law
AUD 150 million. For additional details, please see the Deloitte
Parliament has adopted the 2021 amended article dated July 28, 2021.
For additional details, please see the Deloitte finance bill, which includes provisions that
article dated September 5, 2021. temporarily extend the loss carryback MOF grants extension of
mechanism and amend the rules on the deadline for certain ORIP-
Brazil taxation of nonresidents’ capital gains to related filings
comply with European Union law.
Chamber of Deputies approves The German Ministry of Finance (MOF)
income tax reform bill For additional details, please see the Deloitte published a decree on July 14, 2021 that
article dated July 21, 2021. extends the deadline for certain filings that
On September 2, 2021, Brazil’s Chamber of are required in connection with the German
Deputies approved the income tax reform Germany extraterritorial taxation of royalty payments
bill (No. 2,337/2021) initially presented derived by nonresidents (“ORIP” cases)
on June 25, 2021, although with several Federal Constitutional Court from the original December 31, 2021 date
important proposed changes. The bill now
rules interest rate on tax to June 30, 2022. Despite the extension,
will move forward to the Senate for approval. affected taxpayers should be aware that
payments unconstitutional
the application of the relevant rules can be
Although still subject to review, amendment,
In a decision dated July 8, 2021 and highly complex and that they should not
or even rejection by the Senate, certain
published on August 18, 2021, Germany’s delay in taking necessary actions.
changes to the original draft bill have been
Federal Constitutional Court (BVerfG) held
proposed by the Chamber of Deputies, For additional details, please see the Deloitte
that the 6% annual interest rate applied
which include a reduction of the proposed article dated July 14, 2021.
on direct and indirect tax payments and
withholding tax rate on dividends from 20%
refunds for the year 2014 and subsequent
(30% when paid to beneficiaries located in
periods violates German constitutional
India
tax havens or tax-privileged regimes) to 15%,
principles.
and a reduction in the proposed corporate CBDT provides formula to
income tax (IRPJ) rate from 12.5% in 2022 For additional details, please see the Deloitte recalculate minimum alternate
and 10% in 2023 to 8% as from January 1, article dated August 20, 2021. tax following TP adjustments
2022.
Updated transfer pricing India’s Central Board of Direct Taxes (CBDT)
For additional details, please see the Deloitte
principles provide new issued a notification on August 10, 2021
article dated September 6, 2021.
setting out the formula for adjusting the
MOF guidance on financing
minimum alternate tax (MAT) payable
China structures in a year in which transfer pricing (TP)
adjustments are made for past years (i.e.,
STA issues simplified The German Ministry of Finance (MOF)
published a decree providing updated additional income is included in the books
procedures for unilateral APAs of account) following the conclusion of
“Administrative Principles regarding Transfer
On July 30, 2021, China’s State Taxation Pricing” on July 14, 2021. The updates an advance pricing agreement (APA) or a
Administration (STA) issued Bulletin generally were made in response to recently secondary adjustment.
[2021] No. 24, which sets forth simplified enacted legislation (specifically, the law
For additional details, please see the Deloitte
procedures for unilateral advance pricing to implement the EU anti-tax avoidance
article dated August 10, 2021.
arrangements (APAs) for enterprises that directive (“ATAD implementation law”) and
meet certain conditions. Bulletin 24 will the law on the modernization of withholding
become effective on September 1, 2021. tax relief and certification of withholding tax)
and the February 2020 guidance on financial
For additional details, please see the Deloitte transactions provided in chapter X of the
article dated August 2, 2021. OECD transfer pricing guidelines; however,
the decree also provides some unexpected
5Accounting for Income Taxes | October 2021
Mexico U.K. Accounting Developments
Large taxpayers with low New patent box regime
Environmental, social and
effective tax rates may be
From July 1, 2021, the new patent box governance (ESG)
subject to increased audit risk regime applies to all UK claimant companies,
regardless of when the company elected into Environmental, social, and governance (ESG)
Large taxpayers should be aware that matters may impact a company’s financial
they may be subject to an increased risk the regime. The new rules meet the revised
OECD nexus principles and can limit the accounting and reporting in the context of
of a tax audit if their effective tax rate is the existing accounting guidance and the
below the relevant industry-specific rate qualifying intellectual property (“IP”) profits
based on the proportion of R&D activity current regulatory environment. While these
in a list published by Mexico’s Service Tax effects will vary depending on the company’s
Administration (SAT) on June 13, 2021. undertaken by the company, by applying the
“nexus fraction.” The effective benefit, which industry, along with factors such as relevant
is currently 9%, will increase to 15% from regulatory, legal, and contractual obligations,
For additional details, please see the Deloitte
April 1, 2023, when the corporation tax rate entities should evaluate ESG-related financial
article dated July 21, 2021.
increases to 25%. accounting and reporting implications.
Russia To learn more about how ESG may impact a
For additional details, please see the Deloitte
company’s current accounting and financial
Recent developments affecting UK Banking & Capital Markets newsletter
dated July 23, 2021. reporting, please see Deloitte’s Heads Up
IT companies article dated May 26, 2021.
As from January 1, 2021, qualified, eligible IT Notification of uncertain tax
Reminder: FASB ASU 2019-12,
companies registered in Russia (including positions
the local subsidiaries of multinational Simplifying the Accounting for
corporations) may enjoy the following new Draft legislation for the requirement to Income Taxes, now effective
tax benefits (subject to certain conditions): notify HMRC of uncertain tax treatment was
published on July 20, 2021. Under the current As a reminder, the amendments under FASB
• Preferential 3% corporate income tax rate; drafting, businesses would be required to ASU 2019-12, Simplifying the Accounting for
and report to HMRC where: Incomes Taxes, are now effective for public
• Reduced social security contribution rates business entities (PBEs).
(total rate of 7.6% vs 30% standard rate). • A provision has been recognized in the
accounts of the company or partnership in The ASU impacts various topic areas within
To claim these benefits, software developers accordance with accounting principles; ASC 740, including accounting for taxes
must meet the following requirements: • Reliance was placed on an interpretation under hybrid tax regimes, accounting for
or application of the law that is not in increases in goodwill, allocation of tax
• Obtain an accreditation certificate from the accordance with HMRC’s known position; amounts to separate company financial
Ministry of Communications and Media; or statements within a group that files a
and • There is a substantial possibility that consolidated tax return, intraperiod tax
• Generate at least 90% of their income from a court or tribunal would, if it were to allocation, interim period accounting,
qualified IT activities. consider the treatment, conclude that the and accounting for ownership changes in
way the amount has been arrived at is investments, among other minor codification
For additional details, please see the Deloitte improvements.
incorrect.
article dated August 2, 2021.
For additional details, please see the Deloitte For non-PBEs, the ASU is effective for fiscal
UK Banking & Capital Markets newsletter years beginning after December 15, 2021,
dated July 23, 2021. and interim periods within fiscal years
beginning after December 15, 2022. Early
adoption of the ASU is permitted.
For additional details and a full summary of
ASU 2019-12, please refer to our
December 19, 2019 Heads Up.
6Accounting for Income Taxes | October 2021
Reminder: FASB ASU 2020-06, Join us at the Deloitte Tax Accounting
Accounting for Convertible Conference–2021 Virtual from
November 29–December 9, 2021 for tax
Instruments & Contracts in an
accounting sessions delivered by well-known
entity’s own equity Deloitte speakers. Join discussions on key
topics and explore insights from the comfort
On August 5, 2020, the FASB issued ASU
and safety of your virtual office.
2020-06,1 which simplifies the accounting
for certain financial instruments with
characteristics of liabilities and equity, Learn More
including convertible instruments and
contracts on an entity’s own equity. The
Additional resources you may
ASU is part of the FASB’s simplification
initiative, which aims to reduce unnecessary
find helpful
complexity in US GAAP. • Accounting for Income Taxes—Quarterly
Hot Topics Archive
The ASU’s amendments are effective
• TaxFirst Webcast Series
for PBEs that are not smaller reporting
• Deloitte Tax Accounting & Provision
companies, fiscal years beginning after
Services Home Page
December 15, 2021, and interim periods
• Deloitte Tax Accounting & Provisions
within those fiscal years. For all other
Dbriefs Webcasts Series
entities, fiscal years beginning after
• Deloitte Heads Up Newsletter Archive
December 15, 2023, and interim periods
• Global Tax Developments Quarterly—
within those fiscal years. The guidance may
Accounting for Income Taxes
be early adopted for fiscal years beginning
• tax@hand
after December 15, 2020, and interim
periods within those fiscal years. As always, we are interested in your
comments on our publications. Please take a
For additional details and a full summary of
moment to tell us what you think by sending
ASU 2020-06, please refer to our
us an e-mail.
August 5, 2020 Heads Up.
Other Talk to us
If you have any questions or comments
For other information regarding newly issued
about the ASC 740 implications described
accounting standards, exposure drafts,
above or other content of Accounting
and other key developments, refer to our
for Income Taxes Quarterly Hot Topics,
Quarterly Accounting Roundup.
contact the Deloitte Washington National
For upcoming webcasts that give Tax Accounting for Income Taxes Group
you valuable insights on important at: USNationalWNTActIncomeTaxesGrp@
developments affecting your business and deloitte.com
feature practical knowledge from Deloitte
specialists and CPE credits, please visit us at
Dbriefs Webcasts.
7Accounting for Income Taxes | October 2021 This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. As used in this document, “Deloitte” means Deloitte Tax LLP and Deloitte & Touche LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Deloitte.com | Legal | Privacy 1633 Broadway New York, NY 10019-6754 United States Copyright © 2021 Deloitte Development LLC. All rights reserved. Deloitte RSS feeds
You can also read
