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Impact of US tax reforms on IFRS financial statements

Impact of US tax reforms on IFRS financial statements

Significant changes to US tax legislation impact all companies with operations in the US

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Companies need to reflect the impact of the tax reforms in their 2017 financial statements

Changes in US tax legislation were enacted on 22 December 2017. These changes could significantly affect the 2017 financial statements of any company with operations in the US.

The changes are numerous and complex and could have a significant impact on a company’s income tax line this year-end. We highlight some key changes below and explore them in more detail in our publication Tax reform in the United States.

Given that IFRS requires companies to use currently enacted tax laws and rates in their 2017 financial statements, time is of the essence to understand these complex tax changes and to estimate their impact.  

 

Wide-ranging reforms apply

The reforms are wide-ranging and include, but are not limited to:

  • a reduction in the corporate tax rate to 21% (from 35%);
  • a repeal of the corporate alternative minimum tax;
  • a revision to current ‘worldwide’ system of multinational taxation; and
  • business tax reforms that may affect the recognition of deferred tax. 

Tax payable on undistributed overseas profits

Profits earned by foreign subsidiaries will be deemed to have been repatriated to the US.

Companies will have eight years to pay any additional tax due, but the additional tax due will need to be reflected in the 2017 financial statements. 

Remeasurement of deferred tax assets and liabilities

Companies will need to remeasure existing deferred tax assets and liabilities to reflect the change in the corporate rate from 35% to 21%. 

If a company has a large deferred tax asset, this change would increase its 2017 income tax expense.

New deferred taxes may need to be recognised for other provisions of the tax law.

Next steps

If you are affected by the changes in the US tax legislation, act now to identify and understand the changes, and reflect them in your 2017 financial statements. You will also need to consider the impacts on your existing financial reporting processes and internal controls.

Read Tax reform in the United States, which provides our current thinking on the impact on companies reporting under IFRS. 

You may also find it helpful to read KPMG’s latest Q&As  on the impacts for financial reporting under US GAAP.

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