Subtopic
740-10 addresses the majority of tax accounting issues. That Subtopic addresses the majority of differences between the financial reporting (or book) basis and tax basis of assets and liabilities (basis differences) and the requirements to record deferred
income taxes on those differences. It also identifies specific and limited exceptions to the otherwise required recognition of deferred taxes on basis differences.
This Subtopic provides the required accounting and disclosure guidance for certain of the specific limited exceptions identified in Subtopic
740-10 to the requirements to record deferred taxes on specific basis differences related to investments in subsidiaries and corporate joint ventures arising from undistributed earnings or other causes.
The accounting addressed in this Subtopic represents, in some situations, an exception to the otherwise required comprehensive recognition of deferred income taxes for temporary differences.
Remittance of earnings of a subsidiary may sometimes be indefinite because of the specific long-term investment plans and objectives of the parent entity. Even in the absence of long-term investment plans, the flexibility inherent in the U.S. Internal Revenue Code may permit a parent entity to postpone income taxes on the earnings of a subsidiary for an extended period or may permit the ultimate distribution to be taxed at special rates applicable to the nature of the distribution. Other circumstances may indicate that the earnings will probably be remitted in the foreseeable future. However, the parent entity may control the events that create the tax consequences in either circumstance.