Situation
Golf Travel Inc. is a U. S. company that provides travel packages for individual golfers and corporate golf outings. The company has mainly focused on U. S. customers but has decided to expand its business globally. Ben Watson, the company’s CEO, has decided that the best location for the company’s European operations is Ireland. While Mark obviously appreciated all of the golf related history in Ireland, he was also attracted by Ireland’s low 12.5% corporate tax rate. In January 2016, Golf Travel formally opened its European operations, called Europe Golf, in Portmarnock, Ireland, as a wholly owned subsidiary of Golf Travel. During 2016, the subsidiary’s performance exceeded expectations by hosting almost 400 individual golf trips and 200 corporate outings. At the end of the year, the subsidiary reported pretax income of €324,260 and the subsidiary paid Irish taxes of €40,533, leaving a net income of €283,727.
Directions
Ben Watson has asked you, Golf Travel’s Chief Financial Officer, to research the generally accepted accounting principles and write a memo that summarizes the tax issue of earnings of foreign subsidiaries. He is interested in understanding the different financial statement reporting issues of a strategy that remits the earnings back to the United States versus a strategy of permanently reinvesting the earnings back into the Irish subsidiary.