GILTI INCOME AND FINANCIAL REPORTING: AN ANALYSIS OF THE 10-K DISCLOSURES BY S&P 500 FIRMS FOLLOWING THE 2017 TAX REFORM

Mingjun Zhou

Accounting & Taxation, 2022, vol. 14, issue 1, 31-44

Abstract: The 2017 tax reform introduced a minimum tax on “global intangible low-taxed income†(GILTI). Current research has shed limited light on how firms report GILTI-related items on their financial statements. This study examines the 10-K disclosures of S&P 500 firms after the 2017 tax reform (Tax Cut and Jobs Act, or TCJA) and focuses on the differences in their financial reporting choices (period cost vs. deferred method) for GILTI. Most of the firms that chose the deferred tax method are concentrated in the subsectors of pharmaceutical, biotechnology, and software technology. Ten firms reported a total of $24.77 billion of GILTI-related deferred tax liability (and potential “cookie jar†for future earnings) after the passage of TCJA in December 2017. For these firms, GILTI-related items constitute a substantial portion of the total deferred tax liabilities and pre-tax income. The results also show that firms in the industrial sector are in general less likely to be affected by the GILTI regime than firms in the sectors with high-return intangible assets. This is consistent with the legislative intent for the GILTI tax.

Keywords: Accounting Policy; Deferred Tax Liability; Global Intangible Low-Taxed Income; Tax Cut and Jobs Act (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Date: 2022
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