Thank you John. The parent developed a software
. The subsidiary in Ireland sets up deals with customers who will pay let's say 25k/yr to license the software and technical support. So if the Ireland sub has 10 of htese customers...that's 250k....1/2 goes to the Parent...that's basically our transfer pricing...as this is comparable to a deal we would cut with an independent company.
The sub owes the Parent 125k....the sub has accrued this expense. The sub is accrual. The US
parent is cash basis....does US tax law
say if the Parent does have to pick up that income as accrual...or can the Parent wait until it gets money from the Sub. (This is not a consolidated return
Please describe the transaction for which the subsidiary accrued the 100K in 2007 in regards XXXXX XXXXX and when the services, or delivery of product or whatever economic performance will (or has) been performed.
I'm not totally sure the definition of economic performance. The parent really didn't do any work, however we want to be compliant with the law.
I had a disinclination that the IRS
would allow an accrual sub to take a write off
and the parent cash basis entity to delay recognition until it gets the $$....sort of seemed like could play into a tax shelter for a year....ie imagine the sub accrued 100 million and the us parent didn't pick up until following year when it received the 100 nmillion...now just delayed tax on a 100 million.
If you have something easily accessible for the DR that would be great