The aim of the proposed amendments is to clarify how entities account for deferred tax on leases (accounted for under IFRS 16 Leases ) and decommissioning obligations. DART pending content manager is OFF You are here Home . The IRE is not applicable for taxable temporary differences related to investing in subsidiaries, branches or associates, as well as having interest in a joint venture. The Board discussed papers on (1) Sale and Leaseback with Variable Payments: Amendment to IFRS 16, (2) Lack of Exchangeability (IAS 21), (3) Commodity Loans, and (4) Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). Fact pattern: Lessee T rents a building from Lessor L for five years commencing on 1 January . Future taxable amounts arising from recovery of the asset will be capped at the asset's carrying amount. IAS 12 states the IRE in order to have a valid tax accounting treatment to justify the non-recognition of a deferred tax liability related to the initial (“day one”) recognition of certain taxable temporary differences. José Antonio Abraján (jose.abrajan@mx.ey.com), Deferred taxes Senior Manager, EY Mexico, The principal Mexican correspondents of the Compliance Management channel on www.internationaltaxreview.com. The AcSB’s due process includes: IAS 12 Initial recognition exception Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › IAS 12 Initial recognition exception This topic has 1 reply, 2 voices, and was last updated 4 years ago by P2-D2. This example shows the appliance of the IRE: Depreciation is not deductible for tax purposes. IAS 12 focuses on the future tax consequences of recovering an asset only to the extent of its carrying amount at the date of the financial statements. The taxable temporary differences will be in the scope of IRE if they arise from: Ø At the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). The IRE does not apply to transactions affecting taxable profit or accounting profit (or both). In a transaction where the IRE does apply to the goodwill as following: IRE does not apply to transactions affecting taxable profit or accounting profit (or both) because those kind of transactions are not permanent items. hyphenated at the specified hyphenation points. If temporary differences arise on initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit, an entity would—in the absence of the exemption—recognise deferred In March 2018 the Committee discussed a submission about the recognition of deferred tax when a lessee recognises an asset and liability at the commencement date of a lease applying IFRS 16 Leases and whether the initial recognition exemption in paragraphs 15 and 24 of IAS 12 would apply to those temporary differences. Deferred tax assets are recognised only to the extent that recovery is probable. principle in IAS 12. Income Taxes. IAS 12 proposals – Recognising deferred tax on leases. does not reflect the future tax impacts of leases (Approach 1); or expense in profit or loss according to para. Prime examples of this are Leases under IFRS 16 and Decommissioning Obligations. The IRE is represents the least bad of the previous four options, for dealing with “day one” temporary differences. The staff have conducted further research in exploring the standard-setting options and have identified two standard-setting options. exemption. Based on this approach, deferred tax was not recognised on permanent differences (income or expenses that appeared in either the financial statements or the tax return but not in both). What is the objective of IAS 12? Initial recognition exemption > Impacts deferred taxes: A deferred tax asset or liability is not recognized if: it arises from the initial recognition of an asset or liability in a transaction that is not a business combination; and; at the time of the transaction it affects neither accounting profit nor taxable profit. For help please see our FAQ. The Committee discussed the submission at its meetings in March 2018 and June 2018 and came to the conclusion that the matter was relevant and widespread, as there are various kinds of contracts and fact patterns affected. Worked example. The general rule is to recognise deferred tax liabilities for all taxable temporary differences, except to the extent that they are within the scope of the IRE mentioned in IAS-12. IAS 12 prohibits entities from recognising deferred tax assets and liabilities for deductible or taxable temporary differences arising from the initial recognition of an asset or a liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit. Mexico, This content is from: The main issue here is how to account for the current and future consequences of. The IASB has recently issued an exposure draft, ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12). Q&A IAS 12: 15(b)-4 — Initial Recognition Exception — Transfers of Assets Between Group Entities. Show contents . Amendments are proposed to IAS 12 to address circumstances where an asset with a matching liability arising from the same transaction are recognised. This section covers: • the recoverability of deferred tax assets where taxable temporary differences are available or, at the time of the transaction, affects neither accounting profit nor taxable profit. Therefore, we recommend the IASB Therefore, the Committee recommended that the IASB develop clarifying amendments to IAS 12. One of these circumstances is the recognition of a transaction that affects neither IAS 12 also requires the recognition of deferred tax liabilities for taxable temporary differences in Please read our Terms and Conditions and Privacy Policy before using the site. deferred tax [ias 12] exemptions p15(b) ILLUSTRATION: SOLUTION 31/12/X6 Fair value [NRC] 430 000 Tax base Nil . material subject to strictly enforced copyright laws. Sponsored, This content is from: Taxable temporary differenceTax value – book value. The IRE represents the best option for dealing with “day one” taxable temporary differences. An exposure draft of proposed amendments was published on 17 July 2019 with comments requested by 14 November 2019. The standard IAS 12. guides us in the area of income taxes and really, it is not an interesting easy-to-read novel.. The objective of IAS 12 is to prescribe the accounting treatment for income taxes.. 12. Once entered, they are only 1. and the lease liability under IFRS 16 … On disposal any capital gain will be taxable or any capital loss will be not deductible. to the application of the initial recognition exemption in IAS 12 . recognition of a deferred tax liability and a corresponding increase in the carrying value of the related assets on the initial recognition of an asset in a transaction that is not a business combination and for which the tax basis is less than its cost. Recognition of current tax liabilities and current tax assets 12 - 14 Recognition of deferred tax liabilities and deferred tax assets. Consider the following example and compare it to previous example where all temporary differences resulted from subsequent accounting. Option 3 – Gross up the asset to the amount to have an equivalent to the earned pretax profits related to the asset. Currently, in some cases, the exemption is applied, and in other cases it is not. It is intended to narrow the IAS 12 initial recognition exemption such that it would not apply to such transactions, to the extent that amounts recognised in respect of taxable and deductible temporary differences are the same. Recognition of deferred tax liabilitiesThe general principle in IAS 12 is that a deferred tax liability is recognised for all taxable temporary differences. The material on this site is for financial institutions, professional investors and their professional advisers. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. Previous lack of guidance in IAS 12 resulted in diversity in practice. Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable). The initial recognition of an asset or liability in a … Property, Plant and Equipment, IAS 38 Intangible Assets, IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property). Deferred taxes – the initial recognition exception (IRE) related to taxable temporary differences – what you should consider under IAS 12 The general rule is to recognise deferred tax liabilities for all taxable temporary differences, except to the extent that they are within the scope of the IRE mentioned in IAS-12. IASB Publishes Proposed Amendments to IAS 12. Each word should be on a separate line. 12 Jun 2018. The objective of this amendment is to narrow the initial recognition exemption in paragraphs 15 and 24 of IAS 12, so that it would not apply to transactions that give rise to both taxable and deductible temporary differences, to the extent the amounts recognized for the temporary differences are the same. In March 2018 the Committee discussed a submission about the recognition of deferred tax when a lessee recognises an asset and liability at the commencement date of a lease applying IFRS 16 Leases and whether the initial recognition exemption in paragraphs 15 and 24 of IAS 12 would apply to those temporary differences. IASB Publishes Proposed Amendments to IAS 12. Mexico. All Initial Recognition. In this session, the Board discussed the Committee's recommendation to propose a narrow-scope amendment to IAS 12 so that the initial recognition exemption would not apply to transactions that give rise to both taxable and deductible temporary differences to the extent the amounts recognised for the temporary differences are the same. Gustavo Gómez (gustavo.gomez@mx.ey.com), Tax partner, EY Mexico. For example: the goodwill and assets or liabilities whose source is not a business combination, or at the time to acquire the asset or assume the liability the transaction does not affect neither accounting profit nor taxable profit. 58 of IAS 12 in subsequent periods. On 1 January 2019, the right-of use asset. 2019. Diversity in application of IAS 12’s initial recognition exemption At present, when a company recognises a lease asset and lease liability, for example, it either: applies the initial recognition exemption (IRE) separately to the lease asset and lease liability and recognises the tax impacts in profit or loss when they are incurred – i.e. The submitted fact pattern assumed that lease payments and decommissioning costs were deductible for tax purposes when paid and identified different approaches in practice. Taxable temporary differences 15 - 23 Deductible temporary differences 24 - 33 ... IAS 12 Income Taxes was issued by the International Accounting Standards Committee (IASC) in October 1996. At present, when a company recognises a lease asset and lease liability, for . The Committee received a request to interpret how IAS 12 should be applied when a lessee recognises an asset and liability at commencement of a lease (applying either IFRS 16 'Leases' or IAS 17 'Leases'). Recognise a deferred tax expense of $428 by adjusting the carrying value of the book value of the asset. The IASB first discussed this issue in October 2018. As a result there is a difference in tax accounting depending on the allocation of the tax base. © 2019 Euromoney Institutional Investor PLC. The Board discussed deferred tax relating to assets and liabilities arising from a single transaction (proposed amendments to IAS 12). IAS 12 prohibits an entity from recognizing deferred tax arising from the initial recognition of an asset or a liability in particular situations (recognition exemption). In this session, the Board discussed additional analysis and preliminary recommendations on how to address the matters raised in the feedback on the Exposure Draft to the IFRS Interpretations Committee. upon initial recognition, subject to the initial recognition exemption or in subsequent periods. It is important to note that this exemption relates to impacts resulting from initial recognition only. On 17 July 2019, the IASB issued Exposure Draft ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Proposed amendments to IAS 12 ('the ED'). To take away this difference the IFRIC staff proposes a narrow scope amendment to IAS 12 which entails that the initial recognition exemption should not be In this session, the Board discussed whether they agree with the effective date of the amendments, confirm that due process requirements have been met and to ask if any Board members intend to dissent from the amendments. The IASB discussed the issue in October 2018 (general discussion of the issue and agreement with the IFRS Interpretations Committee's recommendation) and January 2019 (transition, retrospective application, and early application) and published an exposure draft of proposed clarifying amendments on 17 July 2019. amend the recognition exemption in IAS 12. 22(c) of IAS 12, the initial recognition exemption applies to both, the date of initial recognition, and subsequent periods. 4 | IAS 12 Income Taxes RECOGNITION AND MEASUREMENT Current tax – Recognition and measurement IAS 12 requires the recognition of current tax in an entity’s financial statements. AASB 112 7 STANDARD Definitions 5 The following terms are used in this Standard with the meanings specified: Accounting profit is profit or loss for a period before deducting tax expense. EY’s other tax compliance partners in Mexico City are: Hector Armando Gama Baca (hector.gama@mx.ey.com), Fernando Tiburcio Lara (fernando.tiburcio@mx.ey.com), Juan Manuel Puebla Domínguez (juan-manuel.puebla@mx.ey.com), Raúl Tagle Cázares (raul.tagle@mx.ey.com), Raúl Federico Aguilar Millán (federico.aguilar@mx.ey.com), Ricardo Delgado Acuña (ricardo.delgado@mx.ey.com). NZ IAS 12 – This version is effective for reporting periods beginning on or after 1 Jan 2019 (early adoption permitted) Date of issue: Nov 2012 Date compiled to: 28 Feb 2018 . IAS 12 has an initial recognition exemption in respect of such a deferred tax liability. However, IAS 12 prohibits a company from doing so if the recognition exemption applies. Tax law is complex and subject to interpretation ― entities need to evaluate tax uncertainties in applying IAS 12. So let’s see what’s inside. Initial recognition of goodwill. Moreover, the question as to whether tax deductions are attributable to a contract, a (single) asset/liability, or rather to cash flows, and as to which consequences this may have for determining temporary differences, is fundamental within IAS 12. The initial recognition of an asset or liability in a transaction which: Business combinations: The initial recognition of goodwill because the deferred tax asset or liability form part of the goodwill arising or the bargain purchase gain recognised. IAS-12 states that adjusting the carrying value of the book value with the related will make the financial statements “less transparent”. Option 4 – Do not recognise any deferred tax liability at all. This content is from: Under the proposed amendments, the initial recognition exemption in IAS 12 would not apply to a transaction that at the time of the transaction gives rise to equal and offsetting amounts of … In some jurisdictions, the revaluation or other restatement of an asset to fair value affects taxable profit (tax loss) for the current period. The recognition exemption prohibits a company from recognising deferred tax when it initially recognises an asset or liability in particular circumstances. Paragraph 22(c) of IAS 12 explains the purpose of the recognition exemption. On the other hand, and according to para. The recognition of deferred tax assets is subject to specific requirements in IAS 12. Recognise a deferred tax expense of $300 in income statement might be meaningless since there is any loss simply by purchase of a non-deductible asset. The exemption in IAS 12 therefore exists for deferred tax liabilities even though there are no theoretical arguments against recognising and despite the standard requiring recognition of deferred tax assets. The origin of the IRE is the today superseded “income statement” approaches to accounting for deferred tax. By using this site you agree to our use of cookies. The IRE appliance seems to be aimed more at permanent differences under the income statement approach. Instant access to all of our content. Q&A IAS 12: 15(b)-4 — Initial Recognition Exception — Transfers of Assets Between Group Entities. Option 2 – Gross up the asset by adding the income tax, Gross up amount of the asset with the related deferred income tax. Entity A acquires an asset for $10 million t… These words serve as exceptions. Diversity in application of IAS 12’s initial recognition . Application of initial recognition exemption? This site uses cookies to provide you with a more responsive and personalised service. The IFRS Interpretations Committee received a submission about IAS 12 Income Taxes and the recognition of deferred tax in relation to leases (when a lessee recognises an asset and a liability at the lease commencement) and decommissioning obligations (when an entity recognises a liability and includes the decommissioning costs in the cost of the item of of property, plant and equipment). C11 The initial recognition exception in paragraphs 15 and 24 of IAS 12 does not apply when the entity recognises assets and liabilities relating to its interest in a joint operation. Brazil, margaret.varela-christie@euromoneyplc.com. Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. 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Please read, Disclosure initiative — Accounting policies, IAS 12 — Deferred tax related to assets and liabilities arising from a single transaction, IAS 19/IFRIC 14 — Remeasurement at a plan amendment, curtailment or settlement / Availability of a refund of a surplus from a defined benefit plan, IFRS 16 — Lease liability in a sale and leaseback, IAS 12 — Deferred tax – tax base of assets and liabilities, Updated IASB work plan — Analysis (November 2020 meeting), Updated IASB work plan — Analysis (October 2020 meeting), Updated IASB work plan — Analysis (September 2020), Updated IASB work plan — Analysis (July 2020 meeting), Updated IASB work plan — Analysis (April 2020 regular meeting), Updated IASB work plan — Analysis (April 2020 supplementary meeting), Deloitte comment letter on the IASB's proposed amendments to IAS 12, IFRS in Focus — IASB proposes amendments to IAS 12 'Income Taxes'. 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