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US GAAP
| IFRS
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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.
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.
No deferred tax liabilities are recognized on undistributed profits and other outside basis differences of foreign subsidiaries and corporate joint ventures that meet the indefinite reversal criterion.
Deferred taxes are generally recognized on temporary differences related to investments in equity investees.
Prior to adoption of ASU 2019-12, US GAAP contained specific guidance on how to account for deferred taxes when there is a change in the status of an investment. If an investee becomes a subsidiary, the temporary difference for the investor's share of the undistributed earnings of the investee prior to the date it becomes a subsidiary is “frozen” and continues to be recognized as a temporary difference for which a deferred tax liability will be recognized. If a foreign subsidiary becomes an investee, the amount of outside basis difference of the foreign subsidiary for which deferred taxes were not provided on the basis of the indefinite reversal exception is effectively “frozen” until the period in which it becomes apparent that any of those undistributed earnings (prior to the change in status) will be remitted. US GAAP notes that the change in status of an investment would not by itself mean that remittance of those undistributed earnings is considered apparent. After adoption of ASU 2019-12, this specific guidance will not exist and an investor would follow the general principles of ASC 740.
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.
| 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.
The general guidance regarding deferred taxes on undistributed profits and other outside basis differences is applied when there is a change in the status of an investment.
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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