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 bhc@banking.state.ar.us
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.