PwC is pleased to offer our updated comprehensive Income taxes guide. This guide focuses on the accounting and financial reporting considerations for income taxes. It supplements information provided by the authoritative accounting literature and other PwC guidance.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations are:
- Business combinations and noncontrolling interests (BCG)
- Consolidation and equity method of accounting guide (CG)
- Financial statement presentation (FSP)
- Financing transactions (FG)
- Foreign currency (FX)
- Property, plant, equipment and other assets (PPE)
- Stock-based compensation (SC)
- Equity method investments and joint ventures (EM)
Summary of significant changes
The following is a summary of recent noteworthy revisions to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions to guide made in October 2021
- TX 220.127.116.11 was added related to accounting considerations for digital service taxes.
TX 2, Objectives and basic principles
- Question TX 2-4 was added related to the deferred tax accounting associated with a transfer of acquired IP to a different jurisdiction.
- Former section TX 2.6 and its sub-sections related to correction of an error versus a change in estimate were moved to TX 6.
TX 3, Book versus tax basis differences
- Question TX 3-1 was added related to valuation allowance considerations when a deferred tax liability exists for US GAAP purposes but not for statutory purposes.
- TX 18.104.22.168 (formerly TX 3.3.8) was updated to discuss impairment considerations for low-income housing investments accounted for using the proportional amortization method.
- TX 22.214.171.124 (formerly TX 3.3.8) was updated to clarify why deferred taxes are not recognized when using the proportional amortization method of accounting.
- Former TX 3.3.5 and TX 3.3.6, both related to acquisitions of assets that do not qualify as a business combination, were moved to TX 10.
TX 4, Recognition and measurement
- Example TX 4-2 was added to illustrate the determination of tax effects of temporary difference reversals on an incremental basis.
- Former Example TX 4-7, relating to the election to include or exclude originating differences in the scheduling related to a tax holiday, was removed as the key concept is now incorporated in TX 126.96.36.199.
- Former Example TX 4-12, relating to the greater of income-based or on non-income based computation, was removed as a result of adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes.
- TX 4.2.1 was added to provide additional insight around scheduling of temporary differences.
- TX 188.8.131.52 (formerly TX 184.108.40.206) was revised to reflect considerations around renewal of tax holidays and limited circumstances where accounting for renewal at a continued preferential rate prior to filing/approval date may be appropriate.
- TX 220.127.116.11 (formerly TX 18.104.22.168) was updated to provide additional guidance related to derecognizing deferred tax assets.
- Former TX 4.3.4, related to alternative minimum tax considerations, was removed as it is no longer applicable as a result of the 2017 Act.
TX 5, Valuation allowance
- TX 22.214.171.124 (formerly TX 126.96.36.199) was clarified to address situations when carryback should be considered as a source of taxable income.
- Example TX 5-18 was added to illustrate scheduling and forecasting when interest limitations apply.
- Former Example TX 5-15, related to determining core earnings, was replaced with new Example TX 5-14, to illustrate adjustments to arrive at earnings from core operations.
- Guidance related to the impact of a going concern on the valuation allowance assessment was clarified and separated into its own subsection (TX 188.8.131.52).
- TX 5.9 (which was formerly the content of TX 6) was added to reflect a summary of other valuation allowance considerations that may be found in other chapters.
TX 6 (former), A change in valuation allowance
TX 6 (new), Changes in tax return accounting methods and changes in estimates
- Content related to error versus change in estimate was moved from TX 2 to TX 6.
- Content related to changes in tax return accounting method was moved from TX 7 to TX 6.
TX 7, Change in tax law or rates
- Content related to changes in tax return accounting method was moved to TX 6.
- Former TX 7.3.1 and its subsections were removed because the content related to FASB guidance was only applicable for the 2017 change in US tax law. Ongoing disclosure requirements can be found in FSP 16.
TX 8, Changes in the tax status of an entity
- Example TX 8-4 was added to address when to consider the effect of a retroactive "check-the-box" election in accounting for US federal taxation of foreign subsidiary earnings.
TX 9, Income tax accounting for financial instruments
- TX 9.3.7 was added related to the tax accounting for debt modifications.
- TX 9.4 and TX 9.4A and related subsections were updated to reflect the issuance of ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.
TX 10, Business combinations and asset acquisitions
- Question TX 10-1 was added related to whether an asset should be recorded for GILTI Foreign Tax Credits in acquisition accounting when the GILTI period cost method is applied.
- The guidance formerly in TX 3.3.5 and TX 3.3.6 related to asset acquisitions was relocated to TX 10.12.
TX 11, Outside basis differences and other special areas
- Figure TX 11-1 was added to depict the difference between an outside basis difference and an inside basis difference.
- Former TX 11.4.9 was moved to TX 14.
- Added Example TX 11-11 to illustrate the consideration of GILTI- basket FTCs when measuring an outside basis deferred tax liability.
TX 12, Intraperiod tax allocation
- Former Question TX 12-1 was moved to Example TX 12-5.
- Former Question TX 12-4 is now Question TX 12-2.
- TX 184.108.40.206 (formerly TX 12.5.3) was updated to discuss a situation when a change in the realizability of deferred tax assets may be allocated to discontinued operations.
- Question TX 12-1, related to intraperiod allocation considerations for NOL carryforward limitations after an initial public offering, was relocated to TX 220.127.116.11 from TX 6.
TX 14, Separate financial statements of a subsidiary
- Example TX 14-8 (formerly example TX 14-7) was revised to include changes as a result of ASU 2019-12, Simplifying the Accounting for Income Taxes.
- TX 14.3.1 was added related to settling temporary differences due to a tax sharing agreement.
- TX 14.8.1 was moved from TX 11 related to spin off transactions and indefinite reversal assertion.
TX 15, Accounting for uncertainty in income taxes
- Content related to Form 20-F disclosures that was previously included in former TX 18.104.22.168 was moved to FSP 16.
- Question TX 15-3 was added from content that was moved from FSP 16 related to when a public entity should include claims for additional tax benefits during an IRS audit in its tabular rollforward.
- TX 15.4.5 was added to provide guidance on tax rates used for uncertain tax positions.
- Question TX 15-2 was added to clarify whether proposed regulations should be considered when assessing a company’s tax position for financial reporting.
TX 16, Accounting for income taxes in interim periods
- Example TX 16-1 was clarified with regard to whether the tax effect of a goodwill impairment would be included in the annual effective tax rate or treated as a discrete item.
- Former Figure TX 16-1 related to the impact of including versus excluding an expense from the AETR was deleted and replaced with Example TX 16-2 to more clearly demonstrate the key points.
- Former Example TX 16-8 was removed and revised as Question TX 16-1.
TX 17, Income tax accounting for stock-based compensation
- Former TX 17.3.2, Nonqualified stock options – employer payroll taxes, was relocated to PwC’s guide to SC 10.7.
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