Appendix D — Sample Disclosures of Income Taxes

D.6 MD&A — Liquidity and Capital Resources

D.6 MD&A — Liquidity and Capital Resources2

Sample Disclosure

As of December 31, 20XX, the company has accumulated undistributed earnings of approximately $XXX million generated by foreign subsidiaries. Because $XXX million of such earnings have previously been subject to (1) the one-time transition tax on foreign earnings required by the 2017 Act or (2) the GILTI tax, any additional taxes due with respect to the repatriation of such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to the tax effect of currency gains or losses recognized on repatriation, foreign withholding, and state taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.

For more information, see SEC Interpretation Release Nos. 33-8350, 34-48960, and FR-72 as well as SEC Regulation S-K, Item 303(b)(1).

Connecting the Dots

The SEC staff expects registrants to disclose the amount of cash and short-term investments held by foreign subsidiaries that would not be available to fund domestic operations unless the funds were repatriated. A registrant may disclose this information in the Cash and Investments section of its MD&A.

Footnotes

At the 2011 AICPA Conference, Nili Shah, deputy chief accountant in the SEC’s Division of Corporation Finance, and Mark Shannon, associate chief accountant in the SEC’s Division of Corporation Finance, discussed certain income tax matters in relation to registrants’ significant foreign operations. Ms. Shah indicated that when a registrant with significant amounts of cash and short-term investments overseas has asserted that such amounts are indefinitely reinvested in its foreign operations, the SEC staff would expect the registrant to provide the following disclosures in an MD&A liquidity analysis: (1) the amount of cash and short-term investments held by foreign subsidiaries that is not available to fund domestic operations unless the funds were repatriated; (2) a statement that the company would need to accrue and pay taxes if repatriated; and (3) if true, a statement that the company does not intend to repatriate those funds.

At the 2013 AICPA Conference, the SEC staff also reminded registrants when making the assertion of indefinitely reinvested foreign earnings, companies are required to disclose (1) the amount of the unrecognized DTL or (2) a statement that estimating an unrecognized tax liability is not practicable. In addition, the staff indicated that it evaluates the indefinite reinvestment assertion in taking into account registrants’ potential liquidity needs and the availability of funds in U.S. and foreign jurisdictions.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.