In certain countries, the tax rate applied to a company’s tax return reporting i

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In certain countries, the tax rate applied to a company’s tax return reporting income depends upon whether the profits for the period are distributed or undistributed. Amounts are initially taxed at the higher rate, but a tax credit is received when the profits are distributed. Therefore, companies need to determine the rate (distributed vs. the undistributed tax rate). Global Multinational Corporation (Global) is a U.S. company that owns and operates 100% of a consolidated subsidiary in a foreign jurisdiction where income taxes are payable at a higher rate on undistributed profits than on distributed earnings. For the year ending December 31, Year 1, Global’s foreign subsidiaries taxable income is $150,000. Global’s foreign subsidiary also has net taxable temporary differences amounting to $50,000 for the year, thus creating the need for a deferred tax liability on the balance sheet. The tax rate on distributed profits is 40%, and the tax rate on undistributed profits is 50%; the difference results in a credit if profits are distributed in the future. At the date of the balance sheet, no distributions have been proposed or declared. On March 31, Year 2, Global’s foreign consolidated subsidiary distributes dividends of $75,000. Instructions: Obtain and review the accounting and related measurement guidance related to anticipated tax credits in IAS12, Income Taxes, and in Sections 25 and 30 of ASC740-10, Income Taxes-Overall. Document the relevant portions of the IFRS and US GAAP related to the accounting that Global must follow for the above series of transactions. Provide the required journal entries for both Year 1 and Year 2 under both the US GAAP and IFRS for each respective date where you are provided information in the above scenario. In your explanation for each journal entry, make sure you document the basis for each journal entry amount. In other words, how did you obtain the figures? In addition, provide a detailed explanation for each respective journal entry with the appropriate Reference(s) to IAS12 and ASC 740-10, respectively. Your Word document submission should be 3-4 pages in length (not including the required cover and references pages). Submissions in excess of 4 pages are permissible.

Explanation / Answer

What are the compliance requirements for tax returns in the United States?
Individual income tax returns for residents are generally due on or before the 15th day of the fourth month following the close of the taxable year (April 15 in the case of a calendar-year taxpayer, which is the required year for nearly all taxpayers). The time for filing can be automatically extended for six months by filing Internal Revenue Service (IRS) Form 4868 (PDF 516 KB), Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. However, the time for payment of tax cannot be extended.
A non-resident who has compensation subject to withholding must file his or her income tax return on or before April 15. In the case of a non-resident who does not have compensation subject to income tax withholding, the tax return is due on June 15.
Non-residents generally must file income tax returns on time to be permitted to claim deductions. In addition, non-residents who claim the benefits of treaty provisions, or otherwise modify an internal revenue law of the United States, may be required to disclose this position on the tax return for the tax year. A failure to disclose could lead to substantial penalties, including possible disallowance of the treaty benefit claimed.
Generally, the tax shown on an income tax return must be paid at the time fixed for filing the return, determined without regard to any extension of time for filing the return. The tax is self-assessed and is due without government assessment or notice and demand.
Residents
Withholding
Individuals pay tax either through withholding or by making payments of estimated tax. Residents are subject to withholding of income tax on wages paid by their employer. Wages include cash and non-cash payments for services performed by an employee for his or her employer, unless an exception applies.
Estimated tax payments
A taxpayer must pay a certain amount of tax during the current year to avoid penalties for under-payment, so should make estimated installment tax payments if it is expected that tax withholding will be insufficient to satisfy his tax liability. However, an individual is exempted from estimated tax payment requirements if the tax for the current year, after credit for withholding tax, is less than USD 1,000.
See Calculation of Estimates/Pre-payments/Withholding below for further discussion of estimated tax payments.
Non-residents
Withholding
Non-residents are subject to withholding of income tax on wages paid by their employer for services performed in the United States (i.e., income effectively connected with a U.S. trade or business).
A non-resident may also be subject to withholding on U.S . source income that is not effectively connected with a U.S. trade or business (generally, investment income). The withholding rate is 30 percent imposed on gross income, unless lowered by treaty.
Estimated tax payments
A non-resident who earns income that is effectively connected with a U.S. trade or business (other than personal service income, e.g., wages) is subject to the same estimated tax payment requirements as residents.
For non-resident taxpayers, the estimated payment schedule is the same as for residents. See Calculation of Estimates/Pre-payments/Withholding below for further discussion of estimated tax payments.
Tax rates
What are the current personal income tax rates in the United States?
Residents
There are four types of tax status that may apply to a resident:
married filing jointly
married filing separately
head of household
single.
Each filing status is subject to a different graduated tax rate scale. The tax rates for 2018 are shown in the tables on the next page. A couple will be considered to be married for U.S. federal tax purposes if they were legally married in a jurisdiction that recognizes their union and that marriage is recognized by at least one U.S. state, territory or possession, regardless of the couple’s domicile.
It is generally more beneficial for married taxpayers to file using the status ”married filing jointly” versus ”married filing separately.” However, married individuals wishing to file a joint tax return generally may not do so if either spouse is a nonresident at any time during the tax year. Certain elections may be available to allow a married couple to use the married filing jointly status when one or both of the individuals is a nonresident during part of the year.
A taxpayer may also be subject to an alternative minimum tax. The alternative minimum tax is payable to the extent it exceeds an individual’s regular tax liability. The alternative minimum tax is figured using lower rates, but allows fewer deductions

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