ASC 740: Year-end tax provision considerations for 2025

Entities with valuation allowances must reassess the scheduling of existing temporary differences and projections of future taxable income in light of tax law changes under the OBBBA. They will need to carefully model the reversals of bonus depreciation and section 174 expenses, as the OBBBA allows entities to deduct these expenses immediately or over several years. The deduction patterns of such items may lead to different conclusions related to the amount of valuation allowance required.

Next step: Entities that are eligible for R&D credits (or other eligible credits) with little or no taxable income in 2025 as a result of the OBBBA should evaluate carryback opportunities if taxable income existed in 2024.

Additionally, the reversion of the definition of adjusted taxable income (ATI) to EBITDA for section 163(j) purposes could significantly impact the future realization of interest expense carryforwards either in a scheduling exercise of reversing existing temporary differences or in an analysis of future taxable income.

Next step: Entities relying on future taxable income projections should also consider changes in global intangible low-taxed income (GILTI), the foreign-derived intangible income (FDII) deduction and BEAT, which become effective after 2025 and may affect future taxable income. Consequently, these items could impact the realization of interest expense and net-operating loss (NOL) carryforward deferred tax assets.

For periods ending after July 4, 2025, entities should disclose the effects of enacted tax law changes on the financial statements, if material. Annual financial statements should include a qualitative disclosure to report the effects of adjustments to deferred tax assets/deferred tax liabilities, income taxes payable or receivable, and income tax expense. These amounts should be quantified to the extent they are material. 

Additionally, the impacts of OBBBA should be reflected in the deferred tax listing in the income tax footnote, and the effect of the change in tax law should be reflected in effective tax rate reconciliation in the income tax footnote (if any such effect exists).

Next step: Entities should include these effects in the "Effect of Changes in Tax Laws or Rates Enacted in the Current Period" category in the effective tax rate reconciliation. Projected effective tax rates disclosed in Management’s Discussion and Analysis (MD&A) should reflect the estimated impact of future changes, such as net controlled-foreign-corporation-tested income (NCTI; formerly GILTI), foreign-derived deduction eligible income (FDDEI; formerly FDII), BEAT, and foreign tax credits.

This notice, released on June 2, 2025, provides for additional flexibility in the transition period by expanding safe harbors and granting some penalty relief. Specifically, the interim simplified method for determining if a corporation is an applicable corporation increases the adjusted financial statement income (AFSI) test thresholds from:

• $500 million to $800 million for corporations
• $50 million to $80 million for members of foreign-parented multinational groups

Further, the notice specifies that penalties will not be imposed for failure to make an estimated payment related to CAMT for tax years that begin after Dec. 31, 2024, and before Jan. 1, 2026.

Notice 2025-46, released Sept. 30, 2025. aims to reduce administrative burden by aligning CAMT principles more closely with regular corporate tax principles as it relates to transactions between domestic corporations, cancellation of debt and attribute reduction, and consolidated groups.

Notice 2025-49, also released Sept. 30, 2025, outlines changes to specific adjustments made when computing AFSI and provides new guidelines for what guidance taxpayers may rely on until final regulations are published. According to the notice, taxpayers may rely on the proposed regulations issued in 2024, modified by notices published thereafter, until final guidance is released.  However, once the final regulations are made available, the previous guidance should not be relied upon for any year.

For entities that may be subject to CAMT, there is still significant uncertainty regarding this complex calculation, as final regulations have not been published, and there continue to be changes to the first round of proposed regulations made via IRS notices.

Next step: Entities should carefully monitor developments as the guidance on CAMT continues to evolve.

The FASB issued 12 accounting standards updates (ASUs) during 2025, with five of those issued in the last three months of the year. These ASUs are generally not effective for the 2025 calendar year, but many allow for early adoption. The topics of the updates are wide-ranging, covering items such as:

• Interim reporting
• Accounting for hedges and other financial instruments
• Accounting for government grants
• Accounting for internal-use software
• Revenue from contracts with customers
• Business combinations
• Disaggregation of income statement expenses
• Various administrative and reporting topics

Although the updates are not directly related to ASC 740, tax professionals should obtain a general understanding of the impacts of these items, as they could have indirect effects on an entity’s income tax provision going forward.

Please refer to the 2025 Effective Date Reminder for a listing of pronouncements issued as of Nov. 1, 2025, which became effective on or after Jan. 1, 2025 for most entities or have not yet become effective for all entities as of Nov. 1, 2025, in order to evaluate the potential impact, if any, on income tax provisions.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, released in December 2023, is now effective for calendar year public business entities (periods beginning after Dec. 15, 2024) and is effective one year later for entities other than public business entities (periods beginning after Dec. 15, 2025). Please see  ASU 2023-09-Expanded Income Tax Disclosure Requirements for more information on the disclosure requirements. 

Although no material tax-related legislative developments were enacted during the quarter ended Dec. 31, 2025, there were three key court decisions that could possibly affect U.S. multinational entities with a connection to or presence in Australia.

Notably, there were two separate decisions by the Federal Court that considered the relevant meaning of “real property” for the purposes of Australia’s foreign resident capital gains tax (CGT) rules.

The decisions (viz. YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317 and Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356) clarified that “real property” takes its technical, legal meaning rather than some other (broader) ordinary meaning, with a conclusion that neither electricity infrastructure assets situated nor mining plant equipment situated on land constituted ‘real property’.

A key consequence of the decisions is that it arguably narrows the scope of the “principal asset test” for the purpose of determining whether a membership interest in a company constitutes “taxable Australian property,” although it should be noted that the decisions are likely to reinvigorate proposed measures to strengthen Australia’s foreign resident CGT regime that were consulted on in 2024 but have not yet progressed toward legislative action.

Also of significance was the Full Federal Court’s decision in Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145, which involved a dispute as to whether amounts paid by Oracle Capac Services Limited Company (Oracle Ireland) pursuant to intra-group licensing arrangements constituting “royalties” were royalties that Oracle Ireland was liable to pay withholding tax on.

The taxpayer’s successful appeal provided for a stay of domestic proceedings until conclusion of a Mutual Agreement Procedure (MAP) process under the double tax agreement between Australia and Ireland.

The decision is potentially significant for U.S. multinationals seeking MAP relief, who should be able to proceed without concern that they may be forgoing their domestic appeal rights. This is likely particularly relevant in the context of the growing number of cases involving the characterization of software payments.

Canada released its 2025 Federal Budget containing measures focused on developing Canada’s economic self-sufficiency and bolstering key industries.

Potentially the most notable tax measure was significant changes to the transfer pricing rules intended to align with the guidelines set by the OECD and the global consensus on the arm’s length principle. Transfer pricing rules impact intercompany transactions between non-arm’s length companies situated in different countries.

The Budget was also notable for companies in the manufacturing, mining, clean energy and technology spaces as new and expanded credits in those areas were announced. These measures are still working their way through the legislative process.

OECD 2025 update on permanent establishment risk from cross-border remote work

On Nov. 19, 2025, the OECD released its 2025 Update to the Model Tax Convention, the first comprehensive revision since 2017. The update revises the Commentary on Article 5. Permanent Establishment (PE), providing clearer guidance on when a home or other relevant place abroad constitutes a PE.

Relevance for U.S. multinationals:

The OECD 2025 Update may affect how U.S. companies assess PE risk in France for employees working remotely from French homes, potentially triggering French corporate income tax obligations, personal income tax reporting, and social security compliance. The framework introduces two main criteria:

1. Time-based indicator: If, over any 12-month period, an employee works less than 50% of their total time from a French location, the home generally will not constitute a PE. Above this threshold, companies must assess additional facts and circumstances, including the permanence of the location and whether it is at the enterprise’s disposal.
2. Commercial reason test: A PE arises only if the employee’s physical presence materially facilitates the enterprise’s business, for example through local interactions, access to resources, or operational coordination. Factors alone—such as minor time-zone differences, cost reduction, or talent retention—do not create a commercial reason. The traditional Article 5 principles remain relevant, including the need for a fixed place of business and the exclusion of preparatory or auxiliary activities.

The 2025 Update was adopted on Nov. 18, 2025, and published on Nov. 19, 2025. Entities should monitor the release to determine whether the changes impact current or future reporting periods. In France, these principles are particularly relevant for assessing potential corporate income tax exposure, local payroll obligations, and social security contributions for remote employees.

At its meeting on Dec. 19, 2025, the German Federal Council approved several tax law amendment acts, including the Minimum Tax Adjustment Act that implements various OECD administrative guidelines on global minimum tax regulations into national law.

In addition, it contains measures that are intended to contribute to the simplification of international corporate tax law (such as the elimination of the German license barrier rule). The Minimum Tax Adjustment Act was published in the Official Gazette on Dec. 23, 2025.

Safe harbor variation for arm’s length price for tax year 2025–26

The Central Government of India has notified that for tax year 2025–26, if the difference between the arm’s length price determined under section 92C and the actual transaction price does not exceed 1% for wholesale trading or 3% in all other cases, the actual transaction price will be deemed to be the arm’s length price.

For this purpose, “wholesale trading” refers to trading transactions in goods where the purchase cost of finished goods is at least 80% of total trading costs and the average monthly closing inventory does not exceed 10% of sales.

The global minimum tax (GMT) was introduced in Italy through Legislative Decree 209/2023 and consists of a global minimum tax regime applicable, as of Jan. 1, 2024, to companies located in Italy that are part of a multinational group. The GMT is Italy’s implementation of the broader framework under the OECD’s Pillar Two framework.

With the decree issued by the Ministry of Economy and Finance on Nov. 7, 2025, the implementing provisions regarding the reporting and payment obligations under the GMT have been published.

Practical implementation requires three clearly defined compliance steps through Ministerial Decrees issued by the Ministry of Economy and Finance (MEF) and measures issued by the Revenue Agency:

Step 1: Preparing and submitting the Notification Form, through which local companies and stateless entities established under Italian law, falling within the scope of application of the GMT, notify the Revenue Agency of their intention to delegate another company in the group to submit the Relevant Communication on their behalf.

Step 2: The Relevant Communication, which is a document containing the data necessary to calculate the ETR, including accounting and tax information and information on deferred taxes.

Step 3: The Tax Declaration, which is an additional requirement for the application and payment of taxes. It consists of a general section, which contains the details of the person submitting it, and specific tables for each of the three taxes for which the declarant is responsible.

The Chancellor of the Exchequer delivered her Autumn Budget on Nov. 26, 2025, with the associated Finance Bill published a week later. The Finance Bill is expected to be enacted early in 2026.

There were a few minor changes to the UK corporation tax regime, including:

• A reduction in the writing down allowance for “main pool” plant and machinery assets, from 18% to 14%, which will take effect from April 1, 2026 (but most expenditure on new assets of that type will qualify for 100% full expensing in the year of acquisition).
  
  
• The UK transfer pricing and permanent establishment rules will be simplified, with definitions and interpretations aligning more closely with OECD principles. The changes generally take effect for accounting periods beginning on or after Jan. 1, 2026. From that date, technical changes will also be made to the surcharge regime that applies where corporation tax is underpaid due to aggressive transfer pricing policies.