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IASB Bends To GAAP On Foreign-Invested Earnings; More

Tammy Whitehouse | October 26, 2004

In the interest of global consistency, the International Accounting Standards Board has agreed to adopt U.S. tax rules that overlook the prospective tax liability associated with foreign-invested earnings—at least for now.

The issue involves foreign earnings that are invested outside a parent company’s home tax jurisdiction. International and U.S. rules (International Accounting Standard No. 12, Income Taxes and FASB Statement No. 109, Accounting for Income Taxes) generally agree that the home jurisdiction should not tax earnings from abroad until those earnings become income to the parent operation at home. However, international rules require companies to recognize and carry the prospective tax liability. U.S. GAAP do not require companies to recognize a future tax liability if the earnings are regarded as permanently or indefinitely invested abroad.

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