Income taxes: IFRS® Accounting Standards versus US GAAP (2024)

2. Deferred tax assets recognition, valuation allowance and effect of AMT

In 2023, the Inflation Reduction Act (IRA) introduced a new Alternative Minimum Tax (Corporate AMT) of 15%, levied on certain large corporations in the US. US companies continue to measure deferred taxes based on the regular statutory rate, and account for the incremental AMT tax as it is incurred.

However, a company’s Corporate AMT status in the future will affect the realization of its deferred tax. For example, a company that forecasts reducing its regular tax with an existing net operating loss carryforward in a year that it is subject to the Corporate AMT may not benefit at all from that deferred tax asset if it anticipates always being an AMT taxpayer.

IFRS Accounting Standards	US GAAP
Under IAS 12, a deferred tax asset is recognized only to the extent it is probable (i.e. more likely than not) that taxable profit will be available against which the deductible temporary differences or the unused tax losses and tax credits can be realized. It appears that a company 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 will be realized in the future. Read more in KPMG publication,IRA and CHIPS: Tax considerations.	Unlike IAS 12, US GAAP requires recognition of all deferred tax assets with a corresponding valuation allowance to the extent it is ‘more likely than not³that the deferred tax assets will not be realized. Unlike IAS 12, we believe a company may elect to either consider or disregard its Corporate AMT status when evaluating the need for a valuation allowance. Using the above example, if the company elects to consider its Corporate AMT status, it would recognize a valuation allowance on the deferred tax asset. If it disregards its Corporate AMT status, it would not recognize a valuation allowance if it is more likely than not that it will have sufficient taxable income under the regular tax system to realize the deferred tax asset.

IFRS Accounting Standards

US GAAP

Under IAS 12, a deferred tax asset is recognized only to the extent it is probable (i.e. more likely than not) that taxable profit will be available against which the deductible temporary differences or the unused tax losses and tax credits can be realized.

It appears that a company 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 will be realized in the future.

Read more in KPMG publication,IRA and CHIPS: Tax considerations.

Unlike IAS 12, US GAAP requires recognition of all deferred tax assets with a corresponding valuation allowance to the extent it is ‘more likely than not³that the deferred tax assets will not be realized.

Unlike IAS 12, we believe a company may elect to either consider or disregard its Corporate AMT status when evaluating the need for a valuation allowance.

Using the above example, if the company elects to consider its Corporate AMT status, it would recognize a valuation allowance on the deferred tax asset. If it disregards its Corporate AMT status, it would not recognize a valuation allowance if it is more likely than not that it will have sufficient taxable income under the regular tax system to realize the deferred tax asset.

IAS 12 and US GAAP have long diverged on the approach todeferred tax assets. However, traditionally the net amount has been similar (absent differences in tax basis). With AMT, amounts of differed tax assets may diverge for companies permanently subject to AMT.