Question

Golf-Travel, Inc. is a U.S. company that provides travel packages for individual golfers and corporate golf outings. The company has mainly focused on U. S. customers but has decided to expand its business globally. Ben Watson, the company’s CEO, has decided that the best location for the company’s European operations is Ireland due to Ireland’s low 12.5% corporate tax rate.

In January, 2016, Golf-Travel formally opened its European operations, called Europe-Golf in Portmarnock, Ireland as a wholly owned subsidiary of Golf-Travel. During 2016, the subsidiary’s performance exceeded expectations by hosting almost 400 individual golf trips and 200 corporate outings. At the end of the year, the subsidiary reported pretax income of €324,260 and the subsidiary paid Irish taxes of €40,533, leaving a net income of €283,727.

Requirements:

1. Ben Watson has asked you, the company’s CFO, to research the U. S. GAAP and provide a summary for the tax issues of earnings of foreign subsidiaries. Especially, he is interested in understanding the different financial reporting issues of a strategy that remits the earnings back to the United States versus a strategy of permanently reinvesting the earnings back into the Irish subsidiary.

2. What would be your answers to the issues in Requirement 1 if it is under IFRS?

Answer 1

These pictures explain the US GAAP and tax issues for foreign subsidiary.