11th Annual Domestic Tax Conference - United States

1 11th Annual Domestic Tax Conference 28 April 2016 | New York City Accounting for income tax 2016 insights and challenge areas Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of ernst & young Global Limited, each of which is a separate legal entity. ernst & young LLP is a client-serving member firm of ernst & young Global Limited operating in the US. This presentation is 2016 ernst & young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from ernst & young LLP.

2 Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. ernst & young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of ernst & young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer's facts and circumstances.

3 These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2. Today's presenters Joan Schumaker Partner, ernst & young LLP. Charlie Gengler Partner, ernst & young LLP. John Vitale Partner, ernst & young LLP. George Wong Partner, ernst & young LLP. Page 3. Agenda Developments Recent legislative and other developments Accounting standard updates FASB project status Internal control over financial reporting PCAOB focus areas SEC focus areas Tax provision challenges and current issues Restatement trends and common causes of tax restatements Other current tax accounting issues Tax provision process best practices Page 4.

4 Legislative and other developments Federal Legislation enacted in 2015 with effects in 2016 and later years On 18 December 2015, President Obama signed into law the Consolidated Appropriations Act, 2016. (the Act) reinstating retroactively certain tax benefits and credits (collectively, tax extenders) that had expired. The Act made a number of the provisions permanent and extended the others for two or five years. On 2 November 2015, President Obama signed into law legislation introducing a new audit system and income tax liability rules for certain partnerships.

5 The Bipartisan Budget Act of 2015 repealed the prior audit system and income tax liability rules for certain partnerships. The changes are effective for tax years beginning after 31 December 2017. Page 5. Legislative and other developments State Significant legislation enacted since 1 January 2016. Delaware On 27 January, enacted legislation phasing in a single sales factor apportionment formula by 2020. Asset management companies, telecommunication companies and companies whose principal headquarters are in Delaware may use either a single-sales factor or an equally weighted three-factor apportionment formula.

6 The changes are effective for tax years beginning on or after 1 January 2017. Louisiana On 4 March, enacted exemption from tax 100% (rather than 72%) of dividend income received by corporations from certain banks. Change applies to all exclusions from taxable income claimed on any return filed or any tax year beginning on or after 1 January 2015, regardless of the tax year to which the return relates. On 9 March, enacted permanent (rather than temporary) limit on net operating loss (NOL) usage to 72% of taxable income. Effective 1 January 2016.

7 Other changes include: Require use of NOLs in order of newest to oldest (effective 1 January 2017). Require adjustment to state taxable income to add back certain related party interest expenses, intangible expenses and management fees deducted for federal income tax purposes (applies tax years beginning on or after 1 January 2016). On 10 March, enacted legislation changing the order in which companies may claim tax credits. Change effective upon enactment. Page 6. Legislative and other developments International Significant legislation enacted since 1 January 2016.

8 Chile On 27 January, enacted legislation simplifying the new income tax system enacted under the Tax Reform Law. The enacted legislation includes the following changes: Election of new regimes, Attribution Regime vs. Semi-integrated Regime Modification of imputation orders to determine tax treatment on distributions from 1 January 2017. Modification of thin capitalization rules Modification of foreign tax credits Substitution tax in lieu of Global Aggregate Tax or Withholding tax Limitation of the general anti-avoidance rules to transactions executed after 30 September 2015.

9 Clarification of CFC (Controlled Foreign Corporation) rules Other reporting obligations Page 7. Legislative and other developments International Significant legislation enacted since 1 January 2016. Israel On 5 January 2016, Israel enacted legislation reducing the corporate income tax rate to 25%. from In addition, the withholding tax rates on interest, royalties, and capital gains related to corporate investors are reduced to 25%. Changes are retroactively effective to 1 January 2016. Japan On 29 March 2016, Japan enacted legislation reducing its corporate income tax rate to for tax years beginning on or after 1 April 2016, and to for tax years beginning on or after 1 April 2018.

10 Other changes include: Reducing the limit on NOL usage to 60% (from 65%) of taxable income for tax years beginning on or after 1 April 2016, 55% of taxable income for tax years beginning on or after 1 April 2017, and 50% of taxable income for tax years beginning on or after 1 April 2018. Reducing the local enterprise tax rate applicable to base income to from 6% for tax years beginning on or after 1 April 2016. Page 8. Legislative and other developments OECD. October 2015, Organisation for Economic Co-operation and Development (OECD) issued final reports on all 15 focus areas in Base Erosion and Profit Sharing (BEPS) project.