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US GAAP | IFRS |
With respect to undistributed profits and other outside basis differences, different requirements exist depending on whether they involve investments in subsidiaries, joint ventures, or equity investees.
Investments in subsidiaries and corporate joint ventures
As it relates to investments in domestic subsidiaries, deferred tax liabilities are required on undistributed profits arising after 1992 unless the amounts can be recovered on a tax-free basis and the entity anticipates utilizing that method.
As it relates to investments in domestic corporate joint ventures, deferred tax liabilities are required on undistributed profits that arose after 1992.
As it relates to investments in foreign subsidiaries and corporate joint ventures, no deferred tax liabilities are recognized on undistributed profits and other outside basis differences if sufficient evidence shows that (1) the subsidiary has invested or will invest the undistributed earnings indefinitely or (2) the earnings will be remitted in a tax-free liquidation. A parent entity should have evidence of specific plans for reinvestment of undistributed earnings of a subsidiary which demonstrate that remittance of the earnings will be postponed indefinitely (this is known as the “indefinite reversal criteria").
Deferred tax assets for investments in subsidiaries and corporate joint ventures may be recorded only to the extent they will reverse in the foreseeable future.
Investments in equity investees
Deferred taxes are generally recognized on temporary differences related to investments in equity investees.
| With respect to undistributed profits and other outside basis differences related to investments in foreign and domestic subsidiaries, branches and associates, and interests in joint arrangements, deferred tax liabilities are recognized except when a parent company, investor, joint venturer, or joint operator is able to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets for investments in foreign and domestic subsidiaries, branches and associates, and interests in joint arrangements are recorded only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
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