Introduction to Tax Accounting Public Introduction to Tax Accounting Question: Where can I get a Tax 101 introduction to tax accounting to learn about enterprise tax provisioning for TRCS? Question: What is tax provisioning, and what are the accounting and income tax guidelines that TRCS supports? Question: What are the accounting for income tax guidelines for US GAAP, IFRS-IAS 12, and ASC 740 supported by TRCS? Documentation and tasks for TRCS Tax Reporting Cloud Service: http://docs.oracle.com/cloud/latest/tax-reporting-cloud/tax-reporting-cloud-videos.html Videos for TRCS Tax Reporting Cloud Service: http://docs.oracle.com/cloud/latest/tax-reporting-cloud/tax-reporting-cloud-videos.html Ken Kramer Senior Principal Product Manager September, 2017

Agenda History and Overview Objectives Computation Components Pre Tax Income (“PTI”, “NIBT”) State Taxes Permanent Differences Temporary Differences Deferred Tax Assets Deferred Tax Liabilities

History and Overview: ASC 740 – 1 of 2 Old SFAS 109 – Accounting for Income Taxes (dated Feb 1992) Accounting for the differences in accounting under US GAAP/IFRS and Tax Focus is a “balance sheet” approach as opposed to prior standards allowing for an “income statement” approach Book Versus Tax analysis (BVT)* Applies to Federal (i.e. National), Foreign, and State (i.e. Regional) taxes based on income under US GAAP and IFRS * Red denotes IFRS-IAS 12

History and Overview: ASC 740 – 2 of 2 Application of the standard requires calculations to be performed at the legal entity and jurisdiction level. Required a complete item by item analysis of the book and tax basis differences for each balance sheet item

Objectives Provide a general understanding: US GAAP – IFRS - IAS 12 ASC 740 – Accounting for Income Taxes IFRS - IAS 12 Accounting for Income Taxes

Objectives – 1 of 2 Recognize Balance Sheet Focus Taxes payable/receivable for the current year tax returns Current Tax Payable Analysis Deferred tax assets/liabilities for future tax effects of temporary differences Balance Sheet Focus Balance Sheet drives the income statement If changes in the tax balance sheet accounts are accurate then income statement impact is the result of the changes

Objectives – 2 of 2 Current tax must be calculated using the “enacted” tax rate for the period Deferred tax should be calculated using the enacted rate for the period that the deferred tax asset (“DTA”) of deferred tax liability (“DTL”) is expected to be realized. DTA’s are further analyzed for the potential for realization and if not fully realizable then a “Valuation Allowance” (i.e. reserve) must be set-up. (No requirement under IFRS)* Deferred Tax Not Recognized (DTNR)* * Red denotes IFRS-IAS 12

Parent and Legal Entity Tax Rates Consolidated Tax Rate The current year tax rate in the jurisdiction where the parent of the consolidated group is domiciled, for example DE, USA – 35% Bermuda – 0% National and Regional Tax Rates “Prior and Current Year” tax rates Current and Noncurrent DTA/DTL” opening and closing tax rates (DTA’s/DTL’s are not classified current/noncurrent under IFRS)

Book versus Tax Basis Differences Permanent Differences (Impact ETR & P&L Tax Expense) Differences between the book and tax basis that will never reverse therefore will never impact taxable income Example: Fines and Penalties, 50% of Meals and Entertainment, etc. Temporary Differences (No Impact ETR & P&L Tax Expense) Differences between the book and tax basis that will reverse therefore will impact taxable income as some point in the future Example: Accumulated tax depreciation in excess of book depreciation, Allowance for Bad Debt, Other Reserves

Effective Tax Rate – 1 of 2 Effective Tax Rate (“ETR”) = Total Tax Provision / Pre Tax Income (“PTI”, “NIBT”) Current Provision Impact ONLY (Impact on ETR) Tax on PTI Tax on Permanent Differences (“Perms”) Current Year Credits Deferred Provision Impact ONLY (Impact on ETR) Valuation Allowance (“VA”) Impact of Tax Rate changes on DTA/DTL

Effective Tax Rate – 2 of 2 Current and Deferred Impact Equal and opposite impact on current and deferred provision No impact on ETR Tax on Temporary Differences (“Temps”) Tax on Net Operating Loss Carryforward (“NOL”) generated/utilized Tax impact of Tax Credits Carryforward (i.e. “R&D Credit”) utilized

Consolidated ETR - Example

Computation Components - 1 of 3 Current Provision Tax Rate * PTI, Perms and Temps, NOL’s, Credits Deferred Provision Temps, NOL’s, Credits, VA

Computation Components - 2 of 3 Regional taxes deductible for National Tax Calculation Must be accounted for in the National calculation Example: US state income taxes are deductible for US Federal Tax Purposes Regional taxes nondeductible for National Tax Calculation Canadian provincial income taxes are not deductible for Canadian Federal Tax Purposes

Computation Components - 3 of 3 Other Items Can impact either the current or deferred provision or both. Differences between the filed tax return and the prior year current income tax provision (i.e. Return versus accrual adjustments, “RTA”) Income Statement adjustments that impact Total Tax Expense (i.e. ETR) Examples are write-offs of Tax Credits or NOL’s that have expired prior to utilization Differences between the book and tax basis in the investment in foreign subsidiaries where earnings are not permanently reinvested (“APB 23)

Computation Components Other Items impacting cumulative deferred balances Deferred Inventory Items No impact on current provision Purchase accounting adjustments Equity Items Other Comprehensive Income (“OCI”) Stock Compensation – Options (“SFAS 123R”)

Summary History and Overview Objectives Computation Components Relevant Authority ASC 740 IAS 12