The PwC summary, referenced herein, summarizes the UK Diverted Profits Tax (DPT) proposal. Additionally, it highlights the effect upon the current year tax provision, including the relevant deferred tax adjustment that includes the date of enactment (26 March 2015).
US GAAP / IFRS considerations:
- Align with the auditor if the DPT qualifies as an “income tax” subject to US GAAP ASC 740 and IAS 12, Income Taxes under IFRS.
- Determine if DPT is applicable (although such notification for DPT to HMRC is not due for six months).
- Review adjustments for deferred taxes.
- Calculate any effect for the current year effective tax rate.
- Determine if tax reserves should be established.
- Review footnote disclosures for DPT impact.
- For new APAs, note that the DPT position will be considered first. This will require extensive documentation for the DPT position as well as the APA submission.
As this controversial legislation was passed less than 30 days ago, there will be a time constraint for determination of the tax accounting impact since any DPT notification and preparation of extensive documentation relevant for HMRC review is now commencing.
Note the tax accounting considerations apply to any new tax legislation, thus the above considerations will apply for similar measures related to new income tax legislation, including BEPS proposals and possibly the Australian DPT equivalent.