One Big Beautiful Bill – IFRS® Accounting Standards

The key US domestic provisions introduced by the bill include the 100% bonus depreciation for qualifying assets, the option to immediately expense US research and experimental (R&E) expenditures, and an increase to the limitation on the deductibility of business interest expense (based on earnings before interest, taxes, depreciation and amortization, or EBITDA).

These provisions may result in changes in temporary differences due to a difference between the tax base of an asset or liability and the carrying amount in the financial statements that will be taxable or deductible in future periods. In addition, these provisions may affect an entity’s assessment of the realizability of deferred tax assets.

The key US international provisions introduced by the bill make changes to the global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII) and base erosion and anti-abuse tax (BEAT) provisions, which were introduced by the TCJA in 2017.

Tax		Accounting under IAS 12
Old	New	Old	New
Global intangible low-taxed income (GILTI) under TCJA replaced by Net CFC tested income (NCTI) under OBBB
A US shareholder of a controlled foreign corporation (CFC) includes in its taxable income its pro rata share of GILTI, which is the excess of a shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return. Additionally, a US shareholder generally can: deduct a portion of its GILTI; and apply a limited deemed paid credit for foreign taxes.	Instead of a GILTI inclusion, a US shareholder includes NCTI (i.e. the shareholder’s aggregate pro rata share of its CFCs’ tested income reduced by its aggregate pro rata share of its CFCs’ tested losses) in its taxable income. The bill removes the net deemed tangible income return from the calculation of the inclusion. Additionally, the bill: makes permanent a 40% deduction for NCTI; and adjusts the calculation of the foreign tax credit so that it is no longer reduced by domestic interest expense and R&E expenditures.	In our view, for temporary differences expected to reverse as GILTI, it is appropriate to either: record deferred tax (e.g. if an entity expects to be subject to GILTI on a continuous basis); or account for the tax on GILTI as a current period charge (e.g. if an entity does not expect to be subject to GILTI on a continuous basis).	Accounting approach for NCTI is consistent with the approach used for GILTI.
Foreign-derived intangible income (FDII) under TCJA replaced by Foreign-derived deduction eligible income (FDDEI) under OBBB
A deduction is allowed for ‘foreign-derived intangible income’ to provide a lower effective tax rate on excess returns earned directly by a US corporation from foreign sales or services. Excess returns are determined by reference to a deemed tangible income return and the deduction is calculated by reference to FDDEI, which is a subset of a taxpayer’s deduction eligible income (DEI).  The amount of the deduction is 37.5% for tax years beginning on or before December 31, 2025.	A deduction is allowed for ‘foreign-derived deduction eligible income’, resulting from the removal of the exclusion for deemed tangible income return from the calculation of FDII. In addition, DEI is no longer reduced by domestic interest expense and R&E expenditures. The amount of the deduction is permanently set at 33.34%.	In our view, it is appropriate to account for FDII deductions in the periods when the foreign sales and services occur and these deductions reduce taxable profit.  However, in some circumstances an entity may also consider the FDII deduction in measuring the deferred taxes on related temporary differences – e.g. if the entity is able to make reliable projections of taxable profits, including foreign sales and the FDII deductions.	Accounting approach for FDDEI is consistent with the approach used for FDII.
Base erosion and anti-abuse tax (BEAT) under TCJA amended by OBBB
A minimum tax that excludes deductions for certain payments made to a foreign affiliate, including payments such as royalties and management fees, but excluding cost of goods sold.	Set the BEAT rate at 10.5%.	In our view, an entity should measure deferred taxes based on the regular statutory rate, and an entity should account for the incremental tax owed under the BEAT system as it is incurred. In addition, in our view, an entity does not need to consider whether it will be subject to the BEAT when assessing to what extent operating losses brought forward will be realized in the future. However, if an entity is able to make reliable projections of future taxable profits and those projections indicate that a certain amount of operating losses brought forward will not be realized because the entity expects to be subject to the BEAT, it may take that into account.	Changes to the provisions in the tax law do not impact the accounting for BEAT under OBBB.

 

As a result of the FDDEI provisions within the bill, certain entities may become perpetual Corporate Alternative Minimum Tax (AMT) payers. Consistent with current accounting for Corporate AMT, in our view, an entity should consider whether it will be subject to the Corporate AMT when assessing to what extent deductible temporary differences and unused tax losses under the regular tax system will be realized in the future.

The bill makes significant changes to energy tax credits, including repealing specific credits, adding new rules specific to certain foreign entities and introducing new phase-outs, among other changes.

The future reduction in tax credits generated may impact an entity’s assessment of the realizability of existing deferred tax assets.

The changes to the energy tax credits, specifically those credits with a direct-pay (i.e. refundable) or a third-party transfer (transferable) feature, could impact the accounting if an entity applies IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. An entity should reassess whether it meets the recognition criteria – i.e. reasonable assurance it will comply with the revised conditions of the tax credit and receive the credit. Factors to consider include uncertainties about eligibility and the ability to avoid recapture.

The bill also includes provisions that limit the employee compensation deduction based on new aggregation rules and the deduction of charitable contributions.

The changes to limits on deductible employee compensation may result in the reduction of existing deferred tax assets related to share-based compensation if the compensation of the related individual is no longer deductible. Going forward, the changes may result in additional permanently nondeductible expenses.

The limitation for the deduction of charitable contributions may result in a new class of permanently nondeductible expenses for an entity.

The income tax expense recognized in each interim period is based on the best estimate of the weighted-average annual income tax rate expected for the full year applied to the pre-tax income of the interim period. The effective rate applied to the interim periods on or after July 4, 2025 should reflect the impact of the bill.

Reporting periods ending prior to July 4, 2025

If an entity’s financial statements for the period ending prior to July 4, 2025 are authorized for issue after that date, then it needs to disclose any significant effect on its current and deferred tax assets and liabilities associated with the bill.

Reporting periods including July 4, 2025

An entity needs to disclose the amount of deferred tax expense (income) relating to changes introduced by the bill as a component of its tax expense and provide an explanation of changes in the applicable tax rates compared to the previous accounting period.