Tax & Accounting Blog

Tax Sharing Allocations – Software and Technical Considerations

Corporate Income Tax, Global Tax Compliance, Tax Provision, US Income Tax Compliance, Year End August 23, 2012

Is it taking you weeks or even months to push down your tax entry from your year-end provision? 

The sharing of tax expense and tax attributes among legal entities in a consolidated group can be a difficult and time consuming process – often involving complex spreadsheets. Many companies face tight turnaround times at provision and are left to spend the months following the tax provision process pushing down top side provision entries to the appropriate legal entity. Or worse, the top side entries are not revisited until years later when a member of the consolidated group is sold.

 The implications of a company’s tax sharing agreements are far reaching and can have both financial reporting implications, performance results measurement, and tax return consequences, including the following:

E&P and stock basis computations – so attention to proper allocations and tracking should be purposeful or significant historical re-work may be required.

  • Intercompany payable and receivable balances which may require equity adjustments for contributions of capital if left unsettled
  • Separate company presentation of an entity in discontinued operations or in carve-out financial statements
  • Performance measurement based on pre-tax results are impacted by expense allocation methodology

Companies should have an integrated process in place to capture tax sharing to ensure that information for decision making is available as needs and opportunities arise. One way to address this is to configure the software calculations and journal entries for the provisions to align computations with proper tax sharing results. Companies can modify software implementations and integrate spreadsheet tools, such as the Active Workpapers or Excel Add-in feature of ONESOURCE Tax Provision, to automate tax sharing allocations in real time. Your tax department can compute and book the tax provisions and journal entries to the appropriate legal entity before financial statement filing deadlines.