IRA and CHIPS under IFRS® Accounting Standards and US GAAP

Key Accounting considerations in relation to recently enacted tax legislation.

From the IFRS Institute – March 2, 2023

In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (‘IRA’) and the CHIPS and Science Act of 2022 (‘CHIPS’), introducing a corporate Alternative Minimum Tax (AMT), an excise tax on stock repurchases and new options for monetizing certain tax credits. This article summarizes the key accounting considerations under IFRS Accounting Standards and US GAAP based on our current understanding of IRA and CHIPS. For details, read KPMG publication, US tax legislation: IRA and CHIPS - US GAAP and IFRS Accounting Standards.

Corporate AMT

IRA introduces a new AMT of 15%, effective for tax years beginning after December 31, 2022, which is levied on certain large corporations – generally, those with three-year adjusted financial statement income of $1 billion or more. The income tax liability for each year is the greater of regular taxes payable and corporate AMT. Companies may claim a credit against regular tax in future years for corporate AMT previously paid, under certain conditions.

Under both IFRS Accounting Standards and US GAAP, we believe any incremental tax payable under the corporate AMT regime should be accounted for in the period it is incurred. Deferred taxes should be measured at the regular statutory tax rate (and not the AMT rate). A company should consider its future expected AMT status when assessing whether corporate AMT credit carryforwards will be realized and whether a related deferred tax asset should be recognized (IFRS Accounting Standards) or subject to a valuation allowance (US GAAP)1.

Further, for deferred tax assets other than AMT credit carryforwards, a company should also consider its future expected AMT status when assessing the realizability of tax benefits from deductible temporary differences and carryforwards under IFRS Accounting Standards. Under US GAAP, however, we believe a company may elect to either consider or disregard its corporate AMT status. The accounting policy choice should be consistently applied and appropriately disclosed.

Excise tax on stock repurchases

The IRA imposes a 1% excise tax on repurchases of stock by certain publicly traded corporations.

Under both IFRS Accounting Standards and US GAAP, the excise tax is accounted for as direct cost of a repurchase. Direct costs associated with acquiring equity-classified stock are generally debited directly to equity in accordance with IAS 322. Direct costs associated with extinguishing mandatorily redeemable stock classified as liabilities are included as part of the extinguishment gain or loss in accordance with IFRS 9.

New options for monetizing certain tax credits

Until enactment of the new legislation, most tax credits (both production tax credits, or PTCs, and investment tax credits, or ITCs) have been both nonrefundable and nontransferable. The IRA introduces a transferability election through which a company can sell certain tax credits to third parties. The IRA and CHIPS also include a direct pay election under which the credit is considered a direct payment of tax and is refundable.

  • Nonrefundable, nontransferable credits

The benefits of nonrefundable, nontransferable tax credits are realizable only if the company has taxable income sufficient to offset the credit amount.

IFRS Accounting Standards do not specifically address the accounting for ITCs and PTCs. As a result, companies need to choose an accounting approach, to be applied consistently, that best reflects the economic substance of the credit. This determination requires judgment in light of all relevant facts and circumstances.

We believe that generally it is appropriate to account for nonrefundable, nontransferable credits by applying the income tax guidance, IAS 12. This is because the substance of a nonrefundable, nontransferable credit is like a tax allowance (e.g. its benefits are determined or limited on the basis of the company’s income tax liability). Under IAS 12, ITCs and PTCs are recognized in profit or loss as a deduction from current tax expense to the extent the entity is entitled to claim the credit in the current reporting period. Any unused ITC is recognized as a deferred tax asset with corresponding income if it meets the recognition criteria.

Under US GAAP, we believe nonrefundable, nontransferable tax credits are also in the scope of the income tax guidance, ASC 740. Non-refundable base PTCs are recognized in the year they arise, which is typically the period in which the related production occurs. For non-refundable base ITCs, companies have an accounting policy choice – they can either (1) apply the flow-through method by recognizing the ITC benefit in the period it arises along with the related deferred tax asset or liability, or (2) apply the deferral method whereby the initial credit is deferred and recognized over the productive life of the qualifying property. There are further complexities to consider for increased and bonus credits.

  • Refundable credits

Both the IRA and CHIPS introduce a direct pay mechanism for certain credits and certain taxpayers. The direct pay election allows a taxpayer to treat the credit as a direct payment of tax, and receive a cash payment if it does not incur any income tax liability.

Under IFRS Accounting Standards, it appears that the IRA’s refundable credits meet the definition of a government grant and should be accounted for under IAS 203. A company does not recognize a government grant until it has reasonable assurance (which we understand the SEC staff equates to ‘probable’ under US GAAP) that (1) it will comply with the relevant conditions and (2) the grant will be received. It recognizes the benefits of the credits in pre-tax income over the periods in which it recognizes the related costs. IAS 20 also has several presentation elections.

Under US GAAP, we also believe these tax credits are like government grants. However, US GAAP currently provides no specific guidance on government grants and many companies have an existing policy to analogize to IAS 20. Other acceptable approaches include analogizing to Subtopic 958-605 (not-for-profit contributions) or Subtopic 450-30 (gain contingencies).

For more information about grant accounting, read KPMG article, Government grants: IFRS compared to US GAAP.

  • Transferable credits

The IRA allows companies to transfer certain credits (or portions of credits) to another unrelated taxpayer in exchange for cash. Each credit can only be transferred once, and the acquiring taxpayer can use the credit to offset its income taxes.

We believe the IRA’s refundable, transferable credits should be accounted for like other refundable credits under both IFRS Accounting Standards and US GAAP (see above for refundable credits).

Accounting for nonrefundable, transferable credits requires more judgment. As mentioned above for nonrefundable, nontransferable credits, IFRS Accounting Standards do not specifically address the accounting for ITCs and PTCs. If a company concludes that the economic substance of these credits is similar to a tax allowance, we believe it is appropriate to account for them by applying IAS 12. If a company concludes that the economic substance of these credits is similar to a government grant, we believe it is appropriate to account for them by applying IAS 20.

In determining the economic substance of these credits for purposes of developing an accounting policy, we believe a company may consider, among other factors, whether it generally expects to realize the benefits of the credits through reducing its taxable income or by transferring the credits to a third party.

Once the accounting policy is developed, a company should apply it consistently from period to period to all nonrefundable, transferable credits, regardless of how the benefits of the credits are actually realized at subsequent reporting dates – i.e. whether they reduce taxable income or are transferred to a third party. Like IFRS Accounting Standards, US GAAP does not specifically address how the transferability feature affects the accounting for these credits. While there may be more than one acceptable approach, we believe it is most appropriate to apply ASC 740 under US GAAP. Differences may arise in practice with IFRS Accounting Standards.

For more guidance about accounting for IRA and CHIPS, read KPMG publication, US tax legislation: IRA and CHIPS - US GAAP and IFRS Accounting Standards.

What’s next?

While companies are working on the intricacies of the internal processes and controls to implement and track compliance with the requirements of IRA and CHIPS, there is much more happening in the world of tax. The Organization for Economic Cooperation and Development (OECD) continues to implement the Base Erosion and Profit Shifting (BEPS) 2.0 framework, an international tax reform initiative designed in part to address concerns over uneven profit distribution. Its release of model rules in December 2021, accompanied by detailed guidance in March 2022, under Pillar Two provides a template for countries to implement a top-up tax on profits, known as the ‘global anti-base erosion’ (GloBE) rules.

Under IFRS Accounting Standards, questions have been raised about whether the GloBE top-up tax is in the scope of IAS 12 for the purposes of both consolidated and separate financial statements and if so, how to account for the related deferred tax impacts. In response, the International Accounting Standards Board issued Exposure Draft, International Tax Reform – Pillar Two Model Rules. The proposed amendments to IAS 12 would specify that all Pillar Two taxes would be in the scope of IAS 12 and introduce a temporary mandatory exception from accounting for deferred tax that arises from legislation implementing the Pillar Two rules as well as new disclosures.

Read KPMG publication, Global Minimum Tax and start the conversation now with your auditors and other accounting advisors.


  1. IAS 12 and ASC 740 approach deferred tax assets (DTA) differently. Under IAS 12, a DTA is recognized to the extent that it is probable that it will be realized – i.e. a net approach. Under ASC 740, all DTAs are recognized and a valuation allowance is recognized to the extent it is more likely than not that the DTA will not be realized – i.e. a gross approach. For more about differences between IFRS Accounting Standards and US GAAP, see KPMG handbook: IFRS® compared to US GAAP.
  2. IAS 32, Financial Instruments: Presentation outlines the accounting requirements for the presentation of financial instruments, particularly as to the classification of such instruments into financial assets, financial liabilities and equity instruments.
  3. IAS 20, Accounting for Government Grants and Disclosure of Government Assistance

Contributing authors

Matt Drucker

Matt Drucker

Partner, Dept. of Professional Practice, KPMG US

+1 212-872-3584
Komal Ahuja

Komal Ahuja

Associate Director, Dept. of Professional Practice, KPMG Global Delivery Center


Subscribe to our newsletter


Sign up now

Meet the IFRS team


Learn more

KPMG Executive Education

CPE seminars and customized training

Learn more