No U.S. Taxes! – Indefinite Reversal Criteria of ASC 740 (APB 23)
It’s been in the press a lot lately. U.S. companies are “cheating” the U.S. taxpayers by not paying their “fair share” of income taxes. How? By utilizing the indefinite reversal criteria within ASC 740, otherwise known as the “APB 23 exception.” See, when foreign subsidiaries of U.S. companies make money, they do pay income taxes – in their country of domicile. Of course, this may be at 0% if they are located in tax havens such as the Bahamas, Bermuda, or the Cayman Islands. This post explores the requirements of the often-maligned APB 23 exception and provides a word of warning for companies currently utilizing it.
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How do these companies avoid paying taxes?
Companies do pay taxes on foreign earnings, but they pay them when and where they are earned. However, if the company meets the indefinite reversal criteria within ASC 740, they do not owe U.S. taxes on the foreign earnings until they are repatriated or the company no longer meets the criteria.
https://www.gaapdynamics.com/insights/blog/2016/09/20/no-u.s...