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Accounting for Income Taxes | July 2021
Accounting for Income Taxes| Quarterly Hot Topics
US Federal
Treasury “Green Book” • Change GILTI and foreign tax credit In this edition
sheds additional light on provisions for foreign fossil fuel income
Biden’s tax proposals
• Change to foreign-derived intangible
The White House released a fiscal year income (FDII) rules US Federal
2022 US budget blueprint on May 28, 2021. • Replace base erosion anti-abuse
tax (BEAT) with Stopping Harmful US Multistate
The budget blueprint calls for significant tax
increases targeting large corporations and Inversions and Ending Low-Taxed
International
includes proposals to overhaul or eliminate Developments (SHIELD)
a number of current-law tax provisions that • Limit foreign tax credits from sales of Accounting Developments
the White House argues provide incentives hybrid entities
for companies to locate investment in • Create incentives for “onshoring”; denial Learn More
foreign jurisdictions. Notable tax of deductions for “offshoring”
provisions include: • Create additional interest deduction
limitation for multinational group members
• Increase in the corporate tax rate
• Implement minimum tax on book income For additional details, please see
• Revise the global intangible low-taxed the Deloitte tax@hand article dated
income (“GILTI”) regime May 29, 2021.
• Disallow deductions for exempt or tax- For updates and perspective on the latest
preferred foreign gross income tax developments coming out of Congress,
• Expand IRC section 7874 (rules please subscribe to Tax News and Views.
related to expatriated entities and
their foreign parents)
1
Accounting for Income Taxes | July 2021
Arizona
New law updates state
conformity to IRC
New law updates the definition of the
federal IRC for Arizona tax purposes to the
IRC as in effect on March 11, 2021, including
those provisions that became effective
during 2020, with the specific adoption of
all federal retroactive effective dates, but
excluding any change to the IRC enacted
after March 11, 2021.
For additional details, please refer to the
April 23, 2021 edition of State Tax Matters.
California
FTB says returns may be
prepared using current market-
Federal Periods and Methods US Multistate sourcing rule, not draft
IRS provides automatic State tax considerations The California Franchise Tax Board (“FTB”)
consent and updates of President Biden’s federal states that tax returns for taxable years
procedural guidance for tax proposals beginning during the 2020 calendar year
CFC method changes
The U.S. Department of the Treasury are not required to be prepared utilizing the
On May 11, 2021, the Internal Revenue (“Treasury”) released the 2022 Green Book version of market-sourcing rules reflected
Service (“IRS”) issued Rev. Proc. 2021-26, calling for significant tax increases to fund in proposed revisions to California Code of
which provides guidance for a controlled traditional physical infrastructure projects Regulations because the actual applicability
foreign corporation (“CFC”) to change its and “human” infrastructure initiatives date for the proposed revisions has yet to
depreciation method, whether permissible proposed by the Biden administration in be determined.
or impermissible, to the alternative its American Jobs and American Families
For additional details, please refer to the
depreciation system (“ADS”) under IRC Plans. This Multistate Tax Alert discusses
May 7, 2021 edition of State Tax Matters.
section 168(g) for purposes of computing the state tax considerations associated with
its gross and taxable income and earnings the federal tax proposals outlined in the Governor signs A.B. 80 relating
and profits (“E&P”). Rev. Proc. 2021-26 Green Book. to PPP loans
also modifies Rev. Proc. 2015-13 to require
taxpayers to include IRC section 481(a) Please refer to the Multistate Tax Alert California Governor Gavin Newsom signed
adjustments resulting from a CFC’s method dated June 1, 2021. A.B. 80 addressing modified conformity to
change in computing its tested income federal income tax provisions relating to
GILTI high-tax exclusion: loans forgiven pursuant to the Coronavirus
and tested loss. Additionally, the guidance
Impact on state taxes Aid, Relief, and Economic Security Act, the
clarifies that the computation of the “150
percent rule” that limits audit protection Examine the impact of the GILTI retroactive Paycheck Protection Program (“PPP”) and
with respect to certain CFC method high-tax exclusion election on state income Health Care Enhancement Act, the Paycheck
changes is determined based on foreign tax and future cash repatriation. Protection Program Flexibility Act of 2020, or
taxes deemed paid. the Consolidated Appropriations Act, 2021.
For additional details, please refer to the May
For additional details, please see Deloitte 21, 2021 edition of State Tax Matters. For additional details, please refer to the
tax@hand article dated May 19, 2021 Multistate Tax Alert dated April 30, 2021.
2
Accounting for Income Taxes | July 2021
Idaho Kansas Montana
Enacted legislation reduces Legislature overrides governor Enacted legislation creates
income tax rates veto to enact significant employer job growth incentive
indirect and income tax tax credits
Idaho House Bill 380 was signed into law law changes
modifying the Idaho income tax brackets Montana House Bill 629 was signed into
and reducing the income tax rates for The Kansas State Legislature voted to law by Montana Governor Greg Gianforte
individuals, estates, trusts, and corporations. override Governor Laura Kelly’s veto of creating a new Employer Job Growth
This Multistate Tax Alert summarizes this Senate Bill 50. The bill amends income Incentive Tax Credit.
new law. tax law regarding conformity to certain
Tax Cuts and Jobs Act (“TCJA”) provisions, For additional details, please refer to the
For additional details, please refer to the corporate return due dates, and NOL Multistate Tax Alert dated May 28, 2021.
Multistate Tax Alert dated May 11, 2021. carryforward provisions.
Enacted legislation modifies
Indiana For additional details, please refer to the apportionment factor and
Multistate Tax Alert dated May 5, 2021. eliminates numerous tax
Updates IRC conformity credits
Maryland
Indiana Governor Eric Holcomb signed Senate Bill 376 provides for a double-
House Bill 1001 into law, updating Indiana’s Appellate court affirms weighted sales factor for corporate income
conformity to the IRC, as defined in Indiana mandated use of single- tax apportionment purposes.
Code 6-3-1-11, as of March 31, 2021, effective sales factor alternative
retroactively to January 1, 2021. The apportionment For additional details, please refer to the
Indiana Department of Revenue updated Multistate Tax Alert dated May 18, 2021.
Information Bulletin #119 to address and The Maryland Court of Special Appeals
clarify Indiana’s conformity to certain recently affirmed the Maryland Comptroller’s Nebraska
provisions of the IRC. mandated use of an alternative
New law lowers corporate
apportionment method in calculating
For additional details, please refer to the income tax rates for some
corporate partners’ Maryland income
Multistate Tax Alert dated June 1, 2021. taxpayers
attributed from a limited partnership
pursuant to its discretionary authority to Recently enacted legislation lowers
Tax court says company’s
fairly reflect the extent of a taxpayer’s in- Nebraska’s corporate income tax rates for
receipts are derived from
state activity. some taxpayers—namely, those with taxable
services for sourcing purposes
incomes in excess of $100,000—for taxable
For additional details, please refer to the May
The Indiana Tax Court held that a corporate years beginning or deemed to begin on or
14, 2021 edition of State Tax Matters.
taxpayer received its Indiana income after January 1, 2022.
from the provision of pharmacy benefit New law alters provisions on
services for state-adjusted gross income tax For additional details, please refer to the May
automatic one-year decoupling
purposes, allowing it to source such receipts 28, 2021 edition of State Tax Matters.
from IRC changes
outside Indiana if the greater proportion of
its income-producing activities were incurred New law alters Maryland’s automatic
outside Indiana. one-year decoupling provisions for
state corporate income tax purposes by
For additional details, please refer to the May specifying that such provisions also apply
21, 2021 edition of State Tax Matters. to amendments of the IRC that impact
Maryland revenues by at least $5 million in
any taxable year that precedes the calendar
year in which the amendment is enacted.
For additional details, please refer to the
June 4, 2021 edition of State Tax Matters.
3
Accounting for Income Taxes | July 2021
New Jersey Taxpayer must include royalty Oklahoma
payments received from
Tax court holds that some of foreign affiliates in tax base New law lowers corporate
taxpayer’s in-state activity is income and bank privilege tax
protected by P.L. 86-272 An administrative law judge recently held rates from 6% to 4%
that while certain payments received
The New Jersey Tax Court held that under by a taxpayer from its foreign affiliates New law lowers tax rates for Oklahoma
the presented circumstances, an out-of-state constituted royalties, such intercompany corporate income tax and bank privilege tax
company’s conduct of accepting product payments could not be excluded under purposes from 6% to 4%. Corresponding tax
returned to it prior to acceptance by the a former statutory royalty exclusion in rate reductions also apply to passthrough
customer is ancillary to its solicitation of effect for the prior tax years at issue in entities electing to pay Oklahoma income tax
sales and thus protected activity pursuant computing its Article 9-A combined return at the entity level.
to P.L. 86-272 for state corporation business entire net income.
tax purposes. For additional details, please refer to the May
For additional details, please refer to the 28, 2021 edition of State Tax Matters.
For additional details, please refer to the April 30, 2021 edition of State Tax Matters.
June 4, 2021 edition of State Tax Matters. Oregon
New York City
Adopted rules address GILTI, New law revises
FDII, and intercompany Appellate court broadcaster apportionment
expense addback provisions addresses sourcing of by sourcing sales based on
company’s subscription- audience location
The New Jersey Division of Taxation adopted based service receipts
permanent corporation business tax rules Oregon Senate Bill 136 provides guidance
addressing treatment of GILTI and FDII, as The New York Supreme Court, Appellate to determine the sales factor for taxpayers
well as New Jersey’s intangible expense Division, considered the proper method engaged in broadcasting services, requiring
addback statute. for sourcing a consulting company’s broadcasters to use their subscribers to
receipts from subscription-based services determine the sales factor numerator to
For additional details, please refer to the for purposes of calculating its New apportion sales from broadcasting services.
April 9, 2021 edition of State Tax Matters. York City general corporation tax sales
For additional details, please refer to the
factor—affirming that such receipts must
New York Multistate Tax Alert dated May 25, 2021.
be allocated to New York City based on
2021–2022 state budget compensation paid to nonemployee Tax court addresses inclusion
highlights consultants as well as employees performing of commodities hedging
both consulting and non-consulting tasks. receipts in company’s
New York Governor Andrew Cuomo signed sales factor
into law New York’s 2021–2022 Budget Act. For additional details, please refer to the
April 16, 2021 edition of State Tax Matters. In an order released by the Magistrate
For additional details, please refer to the Division of the Oregon Tax Court
Multistate Tax Alert dated April 20, 2021. involving whether to include a taxpayer’s
commodities hedging receipts in its
sales factor for Oregon corporate excise
tax purposes, the presiding magistrate
held that such receipts arose from sales
of intangible assets and thus must be
excluded unless they derive from the
taxpayer’s primary business activity.
For additional details, please refer to the
April 23, 2021 edition of State Tax Matters.
4
Accounting for Income Taxes | July 2021
South Carolina International the disposal of R&D assets that are
likely to have been over-depreciated by
New law updates state Multiple jurisdictions concessional capital allowances. Medical
conformity to IRC and biotech claimants also will start to
Withholding tax rates turn their mind to the consultation on the
New law updates corporate and personal design of the recently announced patent
income tax statutory references to the An update on recent tax treaty developments
box regime from July 1, 2022.
IRC, referring to the federal law in effect as from May 2021 with a focus on items that
as amended through December 31, 2020 directly affect the withholding tax rates of
For additional details, please see the
and includes the effective date provisions the key jurisdictions covered by the Deloitte
Deloitte article dated May 17, 2021.
contained in it. International Tax Source (DITS) has
been released. Germany
For additional details, please refer to the May
21, 2021 edition of State Tax Matters. Please see the Deloitte tax@hand article EU anti-tax avoidance directive
dated May 25, 2021. into German tax law, along with
Virginia other measures
G7 communique on global
Budget bill requires tax reform On June 30, 2021, the “ATAD implementation
corporations to file an law” to implement the EU anti-tax avoidance
informational report on unitary On June 5, 2021, the Group of Seven (G7)
directive into German domestic law was
combined reporting finance ministers published a communiqué,
published in the Federal Gazette. The anti-
which sets out high-level political agreement
hybrid rules are retroactively effective as of
Virginia House Bill H.B. 1800 contained on global tax reform, including the
January 1, 2020.
amendments requiring Virginia corporate reallocation of a share of the global residual
taxpayers that are members of a unitary profit of certain businesses to market For additional details, please see the Deloitte
business group to file an informational countries and a minimum effective tax rate in article dated May 25, 2021 and tax@hand
report with the Department of Taxation for each country in which a business operates of article dated June 25, 2021.
the unitary group reflecting the combined at least 15%.
net income and tax of the unitary group. Modernization of the corporate
This Multistate Tax Alert discusses this new For additional details, please see the income tax rules
reporting requirement in further detail. Deloitte tax@hand article dated June 7, 2021
and the Deloitte tax@hand article dated On June 30, 2021, the law to modernize
For additional details, please refer to the June 14, 2021. corporate income tax rules was published
Multistate Tax Alert dated May 12, 2021. in the Federal Gazette. The law includes
Australia an option for partnerships to be taxed as
West Virginia corporations and certain other measures.
R&D tax considerations―past,
Adopts single factor sales and present, and future For additional details, please see the Deloitte
market sourcing apportionment article on the draft law dated March 25, 2021.
Australian taxpayers carrying on eligible
West Virginia Governor Jim Justice signed research and development (R&D) activities Modernization of the
into law House Bill 2026, which includes should turn their mind to the following key withholding tax relief law
moving the state to a single sales factor issues resulting from the tax legislative
apportionment regime with market-based changes seen in the last 12 months: After the lower house of parliament
sourcing for sales other than sales of tangible approved the law on the modernization of
personal property. • The new R&D tax offset rates and most the withholding tax relief law on May 5, 2021,
of the other amendments enacted the upper house approved the law on May
For additional details, please refer to the late last year will take effect from July 28, 2021. The law includes a modernization
Multistate Tax Alert dated April 14, 2021. 1, 2021. Taxpayers should start to of German WHT rules and a significant
incorporate the key changes and any tightening of the German anti-treaty
For more US Multistate income tax news and increased risks into existing corporate shopping rule. The law was published in the
developments for the current quarter, please tax governance frameworks. Federal Gazette on June 8, 2021.
visit Deloitte’s State Tax Matters archive and • Reduced periods of review will apply
consider subscribing to State Tax Matters to for base rate entities for income years For additional details, please see the Deloitte
receive up-to-date US Multistate news commencing on or after July 1, 2021. There article on the draft law dated March 24, 2021.
every week. will also be increased risks surrounding
5Accounting for Income Taxes | July 2021
India
CBDT notifies thresholds for
significant economic presence
India’s Central Board of Direct Taxes (CBDT)
on May 3, 2021 issued Notification No.
40/2021 that prescribes the thresholds
for constitution of a significant economic
presence (SEP) in India for the purposes
of establishing a business connection of a
nonresident in India and confirms the date
from which the SEP concept will apply.
For additional details, please see the Deloitte
tax@hand article dated June 3, 2021.
Italy
clarifications on the definitions of taxable also clarifies that consolidated financial
Law decree provides significant persons and services, exemptions, statements prepared under US, Canadian,
enhancements to notional territorial nexus requirements, reporting Chinese, Korean, and Japanese GAAP
interest deduction regime and accounting obligations, refunds, and (generally accepted accounting principles)
double taxation relief. In addition, through are acceptable for purposes of the equity
On May 25, 2021, the Italian government Law Decree No. 41, published in the official escape clause and multinationals should not
published a new law decree (No. 73/2021) in gazette on March 22, 2021, the Italian be required to convert their consolidated
the official gazette, introducing tax measures government has further postponed the accounts into IFRS or EU GAAP.
to increase the support for businesses and payment and reporting deadlines for the
the economy in response to the coronavirus DST to allow taxpayers time to comply with For additional details, please see the Deloitte
(COVID-19). To support liquidity and the additional guidance. tax@hand article dated June 8, 2021.
encourage Italian entities to increase their
capital, the law decree introduces, among For additional details, please see the Deloitte Netherlands
other measures, significant enhancements tax@hand article dated April 8, 2021.
Changes to Dutch tax loss
to the notional interest deduction ((NID), also
Luxembourg carryforward
referred to as the ACE) for equity increases
taking place during fiscal year (FY) 2021 (i.e., On June 4, 2021, the Netherlands published
Tax authorities update
between January 1, 2021 and December 31, the Decree in the Official Gazette, which
guidance on interest expense
2021 for calendar-year companies). Although provides for the implementation of the NOL
deduction limitation rules
the decree entered into force immediately carryforward changes that were proposed
after its publication, it must be converted The Luxembourg tax authorities updated as part of the 2021 Tax Plan. Currently,
into law by the parliament within 60 days to their guidance on the interest expense Dutch tax law states that tax losses can be
avoid being retroactively null and void, and deduction limitation rules of article 168b of carried back one year and carried forward
there could be changes to its provisions. the Income Tax Law (ITL) by commenting on six years. Under the new tax law, the NOL
the equity escape provision for members of carryback period will remain one year and
For additional details, please see the Deloitte
a consolidated group for financial accounting the carryforward period will be unlimited.
tax@hand article dated June 3, 2021.
purposes in a circular dated June 2, 2021. However, the amount of the NOL utilization
Guidance issued on digital Where the taxpayer is part of a group that will be limited to 50% of taxable income (in
services tax, payment and files statutory consolidated accounts, the excess of EUR 1 million). The legislation will
filing obligations deferred worldwide indebtedness of the overall enter into force on January 1, 2022 and will
group may be taken into account to allow apply to all tax losses arising as of January 1,
On March 24, 2021, the Italian tax authorities taxpayers to deduct higher amounts of 2022, as well as tax loss carryforwards still
released official guidance on the digital exceeding borrowing costs. In this respect, available at that date.
service tax (DST) that is being implemented the interest limitation rule does not apply if
in Italy pending broader solutions from the a company can demonstrate that its ratio of For additional details, please see the Deloitte
OECD on the taxation of digital services. The equity over total assets is equal to or higher article published June 2021.
extensive guidance provides significant than the equivalent group ratio. The circular
6Accounting for Income Taxes | July 2021
Russia • from one year to three years. Companies For non-PBEs, the ASU is effective for fiscal
with accounting periods ending between years beginning after December 15, 2021,
Russia denounces tax treaty April 1, 2021 and March 31, 2022 will and interim periods within fiscal years
with the Netherlands be permitted, after carry back to the beginning after December 15, 2022. Early
preceding year, which remains unlimited, adoption of the ASU is permitted.
On June 7, 2021, Russia’s Ministry of Finance to carry back a maximum of £2,000,000
confirmed the denunciation of the 1996 of unused losses against trading profits of For additional details and a full summary of
Netherlands-Russia tax treaty following the preceding two years, subject to certain ASU 2019-12, please refer to our
the completion of all unilateral withdrawal group restrictions. December 19, 2019, Heads Up.
procedures. The treaty will be officially
terminated on January 1, 2022. The action Reminder: FASB ASU 2020-06,
For additional details, please see the
has potentially significant consequences accounting for convertible
Deloitte article dated June 11, 2021.
for multinationals who hold investments instruments and contracts in
in Russia via a Netherlands intermediary Accounting Developments an entity’s own equity
and Russian corporate groups structured
IASB publishes amendments On August 5, 2020, the FASB issued ASU
through Dutch holdings.
to IAS 12 2020-06, which simplifies the accounting
For additional details, please see the Deloitte for certain financial instruments with
tax@hand article dated June 15, 2021. On May 7, 2021, the International Accounting characteristics of liabilities and equity,
Standards Board (IASB) has published including convertible instruments and
U.K. “Deferred Tax related to Assets and contracts on an entity’s own equity. The
Liabilities arising from a Single Transaction ASU is part of the FASB’s simplification
Finance Bill 2021 receives (Amendments to IAS 12)” that clarify initiative, which aims to reduce unnecessary
Royal Assent how companies account for deferred complexity in US GAAP.
tax on transactions such as leases and
The Finance Bill 2021 received Royal The ASU’s amendments are effective
decommissioning obligations.
Assent on June 10, 2021. The bill contained for PBEs that are not smaller reporting
several legislative changes to corporate The amendments narrowed the scope of the companies, fiscal years beginning after
tax, including: recognition exemption in paragraphs 15 and December 15, 2021, and interim periods
24 of IAS 12 (recognition exemption) so that within those fiscal years. For all other
• An increase in the rate of corporation tax
it no longer applies to transactions that, on entities, fiscal years beginning after
for companies with profits over £250k
initial recognition, give rise to equal taxable December 15, 2023, and interim periods
to 25% with effect from April 1, 2023.
and deductible temporary differences. within those fiscal years. The guidance may
Companies with profits of £50k or less
be early adopted for fiscal years beginning
will be eligible for a new small profits rate For additional details, please see the Deloitte after December 15, 2020, and interim
and will continue to pay corporation tax at article dated May 7, 2021 periods within those fiscal years.
19%. For companies with profits between
£50k and £250k, corporation tax rates will Reminder: FASB ASU 2019-12, For additional details and a full summary of
be tapered until they reach the main rate simplifying the accounting for ASU 2020-06, please refer to our August 5,
of 25%. income taxes, now effective 2020, Heads up.
• For qualifying capital expenditure incurred
from April 1, 2021 up to and including As a reminder, the amendments under FASB
March 31, 2023, companies can claim in ASU 2019-12, Simplifying the Accounting for
the period of investment: Incomes Taxes, are now effective for public
– A super-deduction providing business entities (PBEs).
allowances of 130% on most new
The ASU impacts various topic areas within
plant and machinery investments that
ASC 740, including accounting for taxes
ordinarily qualify for 18% main rate
under hybrid tax regimes, accounting for
writing down allowances
increases in goodwill, allocation of tax
– A first-year allowance of 50% on most
amounts to separate company financial
new plant and machinery investments
statements within a group that files a
that ordinarily qualify for 6% special rate
consolidated tax return, intraperiod tax
writing down allowances
allocation, interim period accounting,
• A temporary increase to the period over
and accounting for ownership changes in
which companies and unincorporated
investments, among other minor codification
businesses can carry back trading losses
improvements.
7Accounting for Income Taxes | July 2021 Other For other information regarding newly issued accounting standards, exposure drafts, and other key developments, refer to our Quarterly Accounting Roundup. For upcoming webcasts that give you valuable insights on important developments affecting your business and feature practical knowledge from Deloitte specialists and CPE credits, please visit us at Dbriefs Webcasts. Learn More Additional resources you may find helpful • Accounting for Income Taxes—Quarterly Hot Topics Archive • TaxFirst Webcast Series • Deloitte Tax Accounting & Provision Services Home Page • Deloitte Tax Accounting & Provisions Dbriefs Webcasts Series • Deloitte Heads Up Newsletter Archive • Global Tax Developments Quarterly—Accounting for Income Taxes • tax@hand As always, we are interested in your comments on our publications. Please take a moment to tell us what you think by sending us an e-mail. Talk to us If you have any questions or comments about the ASC 740 implications described above or other content of Accounting for Income Taxes Quarterly Hot Topics, contact the Deloitte Washington National Tax Accounting for Income Taxes Group at: USNationalWNTActIncomeTaxesGrp@deloitte.com This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. As used in this document, “Deloitte” means Deloitte Tax LLP and Deloitte & Touche LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Deloitte.com | Legal | Privacy 1633 Broadway New York, NY 10019-6754 United States Copyright © 2021 Deloitte Development LLC. All rights reserved. Deloitte RSS feeds
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