Arkansas
State Bank Department
Tax Allocation
Agreement & Accounting for Intercompany Taxes
(updated June 16, 2003)
Intercompany tax
transactions are reviewed to ensure that the methods of tax accounting employed
afford equitable treatment to all subsidiaries. Intercorporate income tax accounting transactions are addressed
by the Board of Governors in a policy statement issued on September 25,
1978. A tax allocation agreement is to
be formulated and maintained by each member of the consolidated group. Annual review and notation of approval of
the tax allocation agreement and intercompany tax reconcilement is to be
included in the minutes of each entity’s board. The tax allocation agreement is to address, at a minimum, the
following:
A description
of the method utilized to determine the amount of estimated taxes paid by each
subsidiary of the parent company (taxes upstreamed to the parent company should
not be in excess of the amount that the bank subsidiary would be responsible
for paying to taxing authorities on a separate entity basis)
An
indication of the timing of payments (should correspond to the time that the
bank would normally pay estimates directly to the IRS and/or State)
A
statement that deferred taxes are to be maintained on the bank subsidiary’s
general ledger (no deferred tax liabilities or corresponding assets can be
transferred to the parent company) and
Procedures
for reconciling intercompany taxes immediately following the filing of annual
tax returns
A sample tax allocation
agreement is available from the Arkansas State Bank Department or by emailing 
Management is
requested to maintain documentation of the separate entity tax calculations for
the organization in order to determine that there are no tax overpayments
upstreamed from the bank subsidiary(ies).
An overpayment of taxes by a bank subsidiary to the parent company can
constitute an unsecured loan to an affiliate under Section 23A of the Federal
Reserve Act and is subject to civil money penalties. Section 23A of the Federal Reserve Act is made applicable to
state nonmember banks by Section 18(j) of the Federal Deposit Insurance Act.
Note: Income tax (benefit) on the Income Statement of the F.R. Y-9 reports is reported on a ‘parent company only’ basis. Appropriate accrual accounts for taxes receivable and payable are to be reported on the balance sheet. Entries to these accounts are usually generated by the corporation’s tax preparer or external auditor. Appropriate documentation is to be maintained to support the entries made to these accounts.
|
|
