Practical tip: Deferred tax accounting implications of holding gains from obtaining control of a foreign investee (No. 2011-03)

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Practical tip 06/16/2011 by Assurance services
Practical tip: Deferred tax accounting implications of holding gains from obtaining control of a foreign investee (No. 2011-03)

At a glance

When a company obtains control of a foreign investee, it remeasures its previously held equity interest to fair value and recognizes a holding gain in income. This holding gain will generally not result in a current tax event. This Practical tip explains the requirement to freeze any previously recorded deferred tax liability and an accounting policy election that may be available in relation to recording deferred taxes on such holding gains.

When a company obtains control of a foreign investee, it remeasures its previously held equity interest to fair value and recognizes a holding gain in income. This holding gain will generally not result in a current tax event. This Practical tip explains the requirement to freeze any previously recorded deferred tax liability and an accounting policy election that may be available in relation to recording deferred taxes on such holding gains.