Apparently a large portion of BP’s settlement for the Gulf Oil spill is tax deductible. In your opinion, should it be tax deductible? Why or why not? Assuming the deduction will be taken in the future, what is the entry to recognize tax expense and the deferred tax asset? What is the effect on the effective tax rate on the nondeductible portion?
In your opinion, should governments enact legislation to stop tax inversions and expatriations? Why? What would be some of the negative consequences of such legislation?
How can the change in the accounting for deferred tax assets (and how they are used in calculating capital ratios) improve the balance sheets of banks in Spain and Italy? Should the accounting be changed? What is the downside?
Pfizer is highlighted as a firm that allegedly “dodges” tax by shifting profits overseas. How does it do this? Would not lowering the tax rate in the U.S. reduce the tendency toward this sort of practice? What other policy changes would you recommend? Given the human capital that is provided at these firms by employees and the financial capital that is provided by savers/investors/pension plans/etc., why is the statement made that corporations “aren’t human”?
Taxes affect individuals’ behavior, as well as corporate behavior. If you were a politician, what would you do, if anything, to change the corporate tax policy in the U.S.? If you were the CFO for one of the firms in the article, what would you advise the government to do to change the corporate tax policy in the U.S.?
The Financial Accounting Foundation (FAF) is the parent to the FASB. FAF has decided to conduct a post-implementation review of a few standards that were implemented many years ago. How do you think they decide which standards to review? How do you think they determine whether the standards need to be changed?
Why do so many firms have so much of their cash balance overseas? Is this a problem? Why or why not? If it is a problem, for whom is it one?
U.S. multi nationals often leave foreign profits overseas to avoid U.S. taxes. Should those profits and cash flows be identified by firms? Since these are “permanently reinvested” overseas, would you change your opinion of the firm’s value? Why or why not?
Do tax rates affect individuals’ behavior? Corporate behavior? Can you make a case at all that these companies who are leaving the U.S., such as Eaton, should stay in the U.S. and pay more in taxes?
If Apple repatriates the foreign earnings, who are the “winners” and who are the “losers”? If you were the CEO or CFO of Apple, to whom would you have the fiduciary responsibility? Would you repatriate the profit and pay the tax, or leave it overseas?
Here is Apple’s response to the below article about Apple’s taxation. Maybe this will help you think about your answers to the below questions.
Did Apple do anything “wrong” by “sidestepping” taxes? Regardless, should anything be changed with respect to taxation, and if so, why? And what exactly?
Should executive pay be tied to increases in net income that resulted from a release of a previously booked reserve? Should AIG be allowed to keep the deferred tax assets for operating loss carryforwards, even though it was “bought out” by taxpayers?
Are Deferred Tax Assets (DTAs) discretionary accounting items? What is the threshold for a write-down? Who decides if the threshold is met? What are possible incentives that could affect the judgment about whether the threshold is met?
