Text of the Standard
Summary
AIFRS compared to IFRS and old AGAAP
Interpretations and guidance
Questions & answers
Articles
IFRIC Rejections and Guidance
- July 2007 - Deferred tax arising from unremitted foreign earnings
- December 2006 - Scope: Australian Petroleum Resource Rent Tax
- March 2006 - Scope
- November 2005 - Single asset entities
- August 2005 - Non-amortisable intangible assets
- June 2005 - Deferred tax relating to finance leases
- June 2005 - Carryforward of unused tax losses and tax credits
- July 2004 - Estonian Dividend Tax
- June 2004 - Discounting of current taxes payable
- June 2004 - Classification of Interests
- April 2003 - Income Tax Accounting under the Tax Consolidation System - Subsidiary Leaving the Group
- February 2003 - Income tax omnibus
and Penalties
- August 2002 - Non-depreciable/depreciable assets
- February 2002 - Asset revaluation
- February 2002 - Effective tax rates
1. July 2007 - Deferred tax arising from unremitted foreign earnings
Issue:
The IFRIC was asked to provide guidance on whether entities should recognise a deferred tax liability in respect of temporary differences arising because foreign income is not taxable unless remitted to the entity’s home jurisdiction. The foreign income in question did not arise in a foreign subsidiary, associate or joint venture.
IFRIC Decision:
The submission referred to paragraph 39 of IAS 12 and noted that, if the foreign income arose in a foreign subsidiary, branch, associate or interest in a joint venture and met the conditions in IAS 12 paragraph 39(a) and (b), no deferred tax liability would be recognised. The submission noted that IAS 12 does not include a definition of a branch. It therefore asked for guidance as to what constituted a branch. Even if the income did not arise in a branch, the submission asked for clarity as to whether the exception in paragraph 39 could be applied to other similar foreign income by analogy.
The IFRIC noted that the Board was considering the recognition of deferred tax liabilities for temporary differences relating to investments in subsidiaries, branches, associates and joint ventures as part of its Income Taxes project. As part of this project, the Board has tentatively decided to eliminate the notion of ‘branches’ from IAS 12 and to amend the wording for the exception for subsidiaries to restrict its application. The project team has been informed of the issue raised with the IFRIC.
Since the issue is being addressed by a Board project that is expected to be completed in the near future, the IFRIC decided not to add the issue to its agenda.
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2. December 2006 - Scope: Australian Petroleum Resource Rent Tax
Issue:
Whether to give guidance on which taxes are within the scope of IAS 12 Income Taxes, to which AASB 112 Income Taxes corresponds.
The IFRIC noted that IAS 12 applies to income taxes, which are defined as taxes that are based on taxable profit. That implies that:
(i) not all taxes are within the scope of IAS 12 but
(ii) because taxable profit is not the same as accounting profit, taxes do not need to be based on a figure that is exactly accounting profit to be within the scope. The latter point is also implied by the requirement in IAS 12 to disclose an explanation of the relationship between tax expense and accounting profit. The IFRIC further noted that the term ‘taxable profit’ implies a notion of a net rather than gross amount.
Finally, the IFRIC observed that any taxes that are not in the scope of IAS 12 are in the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
IFRIC Decision:
The IFRIC also noted the variety of taxes that exist world-wide and the need for judgement in determining whether some taxes are income taxes. The IFRIC therefore believed that
guidance beyond the observations noted above could not be developed in a reasonable period of time and decided not to take a project on this issue onto its agenda.
At its October 2006 meeting, the AASB concurred with the IFRIC view.
At its December 2006 meeting, the AASB agreed to appoint an advisory panel to recommend to the AASB whether Australian petroleum resource rent tax (PRRT) should or should not be
accounted for as an income tax under AASB 112 Income Taxes.
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3. March 2006 - Scope
Issue:
The IFRIC considered whether to give guidance on which taxes are within the scope of IAS 12.
IFRIC Decision:
The IFRIC noted that IAS 12 applies to income taxes, which are defined as taxes that are based on taxable profit.
That implies that (i) not all taxes are within the scope of IAS 12 but (ii) because taxable profit is not the same as accounting profit, taxes do not need to be based on a figure that is exactly accounting profit to be within the scope. The latter point is also implied by the requirement in IAS 12 to disclose an explanation of the relationship between tax expense and accounting profit.
The IFRIC further noted that the term ‘taxable profit’ implies a notion of a net rather than gross amount. Finally, the IFRIC observed that any taxes that are not in the scope of IAS 12 are in the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
However, the IFRIC also noted the variety of taxes that exist world-wide and the need for judgement in determining whether some taxes are income taxes. The IFRIC therefore believed that guidance beyond the observations noted above could not be developed in a reasonable period of time and decided not to take a project on this issue onto its agenda.
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4. November 2005 - Single asset entities
Issue:
Single asset entities The IFRIC considered the application of IAS 12 to single asset entities, and whether the expected manner of recovery of the asset should in any circumstances reflect disposal of the entity rather than the asset.
IFRIC Decision:
The IFRIC decided not to take this item onto its agenda because the issue falls directly within the scope of the IASB’s short-term convergence project on income taxes with the FASB. An exposure draft is expected in 2006.
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5. August 2005 - Non-amortisable intangible assets
Issue:
The IFRIC considered whether to develop guidance on various issues arising from the application of IAS 12 to non-amortised intangible assets, including the question of what tax rate should be applied to calculate deferred tax on intangible assets that are no longer to be amortised because of changes to accounting standards.
The IFRIC also considered the relevance of SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets.
IFRIC Decision:
The IFRIC decided not to develop an Interpretation on this topic because the issues fell within the scope of the IASB’s short-term convergence project with the FASB. An exposure draft is expected later this year.
In response to concerns that the IAS 8 hierarchy requires an analogy to be made to the requirements of SIC-21 in all situations involving assets measured at fair value, the IFRIC noted that SIC-21 has a limited scope that does not address this particular issue.
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6. June 2005 - Deferred tax relating to finance leases
Issue:
The IFRIC considered the treatment of deferred tax relating to assets and liabilities arising from finance leases.
IFRIC Decision:
While noting that there is diversity in practice in applying the requirements of IAS 12 to assets and liabilities arising from finance leases, the IFRIC agreed not to develop any guidance because the issue falls directly within the scope of the Board’s short-term convergence project on income taxes with the FASB. An exposure draft is expected later this year.
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7. June 2005 - Carryforward of unused tax losses and tax credits
Issue:
The IFRIC considered whether to provide guidance on how to apply the probability criterion for the recognition of deferred tax assets arising from the carryforward of unused tax losses and unused tax credits, and in particular whether the criterion should be applied to the amount of unused tax losses or unused tax credits taken as a whole or to portions of the total amount.
IFRIC Decision:
The IFRIC decided not to develop any guidance because, in practice, the criterion is generally applied to portions of the total amount. The IFRIC was not aware of much diversity in practice.
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8. July 2004 - Estonian Dividend Tax
Issue:
The IFRIC considered whether the tax on dividends under Estonian Income Tax Law should be recognised:
(a) in profit or loss, in accordance with paragraphs 52A and 52B of IAS 12 Income Taxes; or
(b) directly in equity, in accordance with paragraph 65A of IAS 12.
IFRIC Decision:
IFRIC members expressed concern about taking onto its agenda a request to interpret a specific tax system, particularly as the features of the Estonian tax system are not particularly widespread or pervasive throughout the world. IFRIC members also noted that the Board of the IASC discussed the Estonian tax system during deliberations of amendments to IAS 12 in 2000.
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9. June 2004 - Discounting of current taxes payable
Issue:
Is it appropriate to discount current taxes payable under IFRSs when an agreement with the taxing agency has been reached to permit the entity to pay such taxes over a period greater than twelve months?
IFRIC Decision:
The general view of the IFRIC was that current taxes payable should be discounted when the effects are material. However, it was noted that there is a potential conflict with the requirements of IAS 20 "Accounting for Government Grants and Disclosure of Government Assistance". As the IASB has tentatively decided to withdraw IAS 20, the members agreed that the issue of discounting current taxes payable should no longer be uncertain and that the topic need not be added to its agenda.
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10. June 2004 - Classification of Interests
Issue:
The IFRIC considered a potential issue as to how to classify interest and penalties that arise from unpaid tax obligations.
IFRIC Decision:
While the IFRIC agreed that IFRSs did not specifically address the issue, it declined to add the issue to its agenda given that the disclosure requirements of IAS 12 and IAS 1 "Presentation of Financial Statements" provide adequate transparency of these items.
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11. April 2003 - Income Tax Accounting under the Tax Consolidation System - Subsidiary Leaving the Group
Issue:
The issue concerns the recognition and measurement of tax assets and tax liabilities under the tax consolidation system where a wholly owned subsidiary leaves, or is expected to leave, the tax-consolidated group.
IFRIC Decision:
The IFRIC noted that this issue was relevant only to separate (rather than consolidated) financial statements, and that it would be difficult to provide guidance that could be applied consistently by entities, given that tax laws in each jurisdiction are different. For these reasons, the IFRIC agreed not to add this issue onto the agenda.
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12. February 2003 - Income tax omnibus
The issue is whether the IFRIC should add six deferred tax issues to its agenda (listed below). The IFRIC noted that all of the issues would potentially be affected by the Board’s short-term convergence project on IAS 12 "Income Taxes" that will be discussed by the Board in April. The IFRIC agreed to await the Board’s decision on the scope of that project before deciding whether to proceed with these agenda items.
Issue:
Issues 1-3 concern whether, and how, entities should apply the exemption from recognising deferred tax on initially recognising assets and liabilities.
Issue 4: Any entity issues an equity instrument, any payments made under which will be deductible against taxable profits.
Should the entity recognise a deferred tax asset on recognising an equity instrument, and should the income tax benefit arising on any payments made under the instrument be recognised in income or equity?
Issue 5: An entity purchases an option on its own shares and classifies it as an equity instrument. For tax purposes, the cost of the option will be deductible against future taxable profits at some point in the future. Should an entity recognise a deferred tax asset on recognising the equity instrument?
Issue 6: Certain tax jurisdictions compute tax liabilities on a territorial rather than a worldwide basis, so that overseas income is not taxable unless it is repatriated. If the entity does not intend to repatriate the overseas interest income, and therefore does not expect to be liable to domestic taxation, should it recognise a deferred tax liability?
IFRIC Decision:
Issue 1-3: The IASB has tentatively decided to amend IAS 12 to eliminate the ‘initial recognition exception’. Accordingly, the IFRIC declined to take this item onto the agenda.
The IFRIC agreed that the underlying issue was how to account for the tax consequences of distributions to external shareholders. The IFRIC observed that the accounting for tax-deductible dividends is explicit in IAS 12. Paragraph 52B of IAS 12 states:
"…the income tax consequences of dividends are recognised when a liability to pay the dividend is recognised. The income tax consequences of dividends are more directly linked to past transactions or events than to distributions to owners."
Therefore, the income tax consequences of dividends are recognised in net profit or loss for the period as required by paragraph 58 except to the extent that the income tax consequences of dividends arise from the circumstances described in paragraph 58 (a) and (b). The Board reaffirmed at the April 2003 meeting that the tax consequences of dividends are recognised when a liability to pay the dividend is recognised. Accordingly, the IFRIC agreed that no further consideration of this issue is necessary.
At the June 2004 meeting, the Board tentatively agreed to modify the definition of tax base in IAS 12 to explain that tax base is a measurement attribute and is the amount at which an asset, liability or equity instrument is recognised for tax purposes under existing tax law as a result of one or more past events. Accordingly, an entity would recognise deferred tax for temporary differences arising on equity instruments.
The IFRIC agreed that no further consideration of this issue was necessary.
The IFRIC agreed that IAS 12 requires recognition of a deferred tax liability. The current exception in IAS 12 relates to differences between the carrying amount of investments in subsidiaries, branches and associates or interests in joint ventures that result primarily from undistributed earnings. The exception does not apply to the temporary differences that exist between the carrying amount and tax base of the individual assets and liabilities within the subsidiary, branch, associate or interest in joint ventures.
Additionally, the Board has tentatively decided to eliminate this exception. Thus, the IFRIC agreed to take no further action.
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13. August 2002 - Non-depreciable/depreciable assets
Issue:
The IFRIC considered providing guidance on whether the whole of an investment property held under a finance lease consisting of land and buildings that is accounted for using the fair value model in IAS 40 "Investment Property" is a “non-depreciable asset” under SIC-21 "Income Taxes – Recovery of Revalued Non-Depreciable Assets" paragraph 4 (with the consequence that any deferred tax asset or liability on it should be measured at the tax rate applicable on a sale of the property).
IFRIC Decision:
The IFRIC agreed not to require publication of an Interpretation on this issue because SIC–21 Income Taxes – Recovery of Revalued Non-Depreciable Assets, IAS 16 Property, Plant and Equipment, and IAS 12 Income Taxes provide adequate guidance.
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14. February 2002 - Asset revaluation
Issue:
The IFRIC discussed whether to address if changes in the fair value of assets give rise to taxable temporary differences and deferred tax liabilities under IAS 12 "Income Taxes".
IFRIC Decision:
The IFRIC decided not to take this item onto its agenda because IAS 12 provides sufficient guidance.
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15. February 2002 - Effective tax rates
Issue:
The IFRIC discussed whether to address the tax rate to be used to measure deferred tax assets and deferred tax liabilities for entities that have low effective tax rates, eg because some income is exempt from tax.
IFRIC Decision:
The IFRIC decided not to take this item onto its agenda because IAS 12 provides sufficient guidance.
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Australian Accounting Interpretations
- UIG Interpretation 121 "Income Taxes - Recovery of Revalued Non-depreciable Assets"
- UIG Interpretation 125 "Income Taxes - Changes in the Tax Status of an Entity or its Shareholders"
- UIG Interpretation 1039 "Substantive Enactment of Major Tax Bills in Australia"
- UIG Interpretation 1052 "Tax Consolidation Accounting"
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