1. Introduction to Tax Accounting
Public
Introduction to Tax Accounting
Question: Where can I get a Tax 101 introduction to tax accounting to learn about enterprise tax provisioning for TRCS?
Question: What is tax provisioning, and what are the accounting and income tax guidelines that TRCS supports?
Question: What are the accounting for income tax guidelines for US GAAP, IFRS-IAS 12, and ASC 740 supported by TRCS?
Documentation and tasks for TRCS Tax Reporting Cloud Service:
Videos for TRCS Tax Reporting Cloud Service:
Ken Kramer
Senior Principal Product Manager
September, 2017

2. Agenda History and Overview Objectives Computation Components
Pre Tax Income (“PTI”, “NIBT”)
State Taxes
Permanent Differences
Temporary Differences
Deferred Tax Assets
Deferred Tax Liabilities

3. History and Overview: ASC 740 – 1 of 2
Old SFAS 109 – Accounting for Income Taxes (dated Feb 1992)
Accounting for the differences in accounting under US GAAP/IFRS and Tax
Focus is a “balance sheet” approach as opposed to prior standards allowing for an “income statement” approach
Book Versus Tax analysis (BVT)*
Applies to Federal (i.e. National), Foreign, and State (i.e. Regional) taxes based on income under US GAAP and IFRS
* Red denotes IFRS-IAS 12

4. History and Overview: ASC 740 – 2 of 2
Application of the standard requires calculations to be performed at the legal entity and jurisdiction level.
Required a complete item by item analysis of the book and tax basis differences for each balance sheet item

5. Objectives Provide a general understanding: US GAAP – IFRS - IAS 12
ASC 740 – Accounting for Income Taxes
IFRS - IAS 12
Accounting for Income Taxes

6. Objectives – 1 of 2 Recognize Balance Sheet Focus
Taxes payable/receivable for the current year tax returns
Current Tax Payable Analysis
Deferred tax assets/liabilities for future tax effects of temporary differences
Balance Sheet Focus
Balance Sheet drives the income statement
If changes in the tax balance sheet accounts are accurate then income statement impact is the result of the changes

7. Objectives – 2 of 2
Current tax must be calculated using the “enacted” tax rate for the period
Deferred tax should be calculated using the enacted rate for the period that the deferred tax asset (“DTA”) of deferred tax liability (“DTL”) is expected to be realized.
DTA’s are further analyzed for the potential for realization and if not fully realizable then a “Valuation Allowance” (i.e. reserve) must be set-up. (No requirement under IFRS)*
Deferred Tax Not Recognized (DTNR)*
* Red denotes IFRS-IAS 12

8. Parent and Legal Entity Tax Rates
Consolidated Tax Rate
The current year tax rate in the jurisdiction where the parent of the consolidated group is domiciled, for example
DE, USA – 35%
Bermuda – 0%
National and Regional Tax Rates
“Prior and Current Year” tax rates
Current and Noncurrent DTA/DTL” opening and closing tax rates
(DTA’s/DTL’s are not classified current/noncurrent under IFRS)

9. Book versus Tax Basis Differences
Permanent Differences (Impact ETR & P&L Tax Expense)
Differences between the book and tax basis that will never reverse therefore will never impact taxable income
Example: Fines and Penalties, 50% of Meals and Entertainment, etc.
Temporary Differences (No Impact ETR & P&L Tax Expense)
Differences between the book and tax basis that will reverse therefore will impact taxable income as some point in the future
Example: Accumulated tax depreciation in excess of book depreciation, Allowance for Bad Debt, Other Reserves

10. Effective Tax Rate – 1 of 2
Effective Tax Rate (“ETR”) = Total Tax Provision / Pre Tax Income (“PTI”, “NIBT”)
Current Provision Impact ONLY (Impact on ETR)
Tax on PTI
Tax on Permanent Differences (“Perms”)
Current Year Credits
Deferred Provision Impact ONLY (Impact on ETR)
Valuation Allowance (“VA”)
Impact of Tax Rate changes on DTA/DTL

11. Effective Tax Rate – 2 of 2 Current and Deferred Impact
Equal and opposite impact on current and deferred provision
No impact on ETR
Tax on Temporary Differences (“Temps”)
Tax on Net Operating Loss Carryforward (“NOL”) generated/utilized
Tax impact of Tax Credits Carryforward (i.e. “R&D Credit”) utilized

12. Consolidated ETR - Example

13. Computation Components - 1 of 3
Current Provision
Tax Rate *
PTI, Perms and Temps, NOL’s, Credits
Deferred Provision
Temps, NOL’s, Credits, VA

14. Computation Components - 2 of 3
Regional taxes deductible for National Tax Calculation
Must be accounted for in the National calculation
Example:
US state income taxes are deductible for US Federal Tax Purposes
Regional taxes nondeductible for National Tax Calculation
Canadian provincial income taxes are not deductible for Canadian Federal Tax Purposes

15. Computation Components - 3 of 3
Other Items
Can impact either the current or deferred provision or both.
Differences between the filed tax return and the prior year current income tax provision (i.e. Return versus accrual adjustments, “RTA”)
Income Statement adjustments that impact Total Tax Expense (i.e. ETR)
Examples are write-offs of Tax Credits or NOL’s that have expired prior to utilization
Differences between the book and tax basis in the investment in foreign subsidiaries where earnings are not permanently reinvested (“APB 23)

16. Computation Components
Other Items impacting cumulative deferred balances
Deferred Inventory Items
No impact on current provision
Purchase accounting adjustments
Equity Items
Other Comprehensive Income (“OCI”)
Stock Compensation – Options (“SFAS 123R”)

17. Summary History and Overview Objectives Computation Components
Relevant Authority
ASC 740
IAS 12