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Deferred Tax on Foreign Branches

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Deferred Tax on Foreign Branches

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by Stephen Widberg.
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  • June 2, 2022 at 1:06 pm #657136
    james8500
    Participant
    • Topics: 49
    • Replies: 9
    • ☆☆

    Hi

    ACCA P2 June 2014, Q2 (b).

    https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p2/exampapers/uk/P2UK_2014-JUN-Q.pdf

    I understand the deferred tax arises from the difference in the property being depreciated over 12 years and for tax purposes 8 years. Temporary difference right?

    However, the solution states the temp difference arises due to the FX differences. I dont understand.

    Additionally, the solution is translating the asset at year end using the historical rate – do we not translate all assets at year end using the closing rate?

    And how do we know whether to use the tax rate in foreign region?

    Please help if you can.

    Thanks

    June 3, 2022 at 7:14 am #657182
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2843
    • ☆☆☆☆☆

    Very old question from an earlier syllabus.

    Branches are (often) more like foreign transactions than subsidiaries – in which a property would be a non-monetary asset – so you would use historic rate.

    Apparently there was some argument at the time about which exchange rate to use for deferred tax.

    Perhaps he was thinking that FX gains are like revaluations, and therefore, on sale of the asset, the parent would make more money when the gains were realised and would therefore pay tax.

    The tax rate would depend on the local legislation – branch taxation is complex but way outside our syllabus.

    That’s as much as I can say – except practice the more recent questions. 🙂

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