In cross-border deals, the acquisition of a foreign business can introduce complexities in accounting for income taxes.
Lower foreign tax rates and accumulated offshore cash have contributed to the growing appetite for international expansion through cross-border M&A transactions. The acquisition of a foreign business by a U.S. multinational can introduce complex financial reporting issues when accounting for income taxes. A thorough understanding of the foreign target’s operations and tax structure is needed to understand the legal entity in which the acquired assets reside, the relevant taxing jurisdictions, and applicable tax rates that may impact the recognition of deferred taxes. In addition, buyer-specific plans related to existing or acquired unremitted foreign earnings may trigger a tax liability. Further, evaluating whether post-acquisition transactions or elections are included in acquisition accounting or reported in earnings can require a significant amount of judgment.
This edition of Mergers & acquisitions — a snapshot is the third in our series focused on cross-border acquisitions and provides insight into the complexities and judgments in accounting for income taxes in cross-border M&A deals.