IASB December 2005

The Board considered the following issues that arose from drafting the amendments to IAS 12 and from letters from constituents:

(a) the treatment of assets and liabilities that have a tax base that differs from their initial carrying amount

(b) the recognition of deferred tax assets and liabilities arising on the initial recognition of goodwill

(c) the allocation of tax to components of profit or loss and equity

(d) intragroup transfer of assets.

The Board had previously decided that assets acquired outside a business combination that have a tax base that differs from their acquisition cost should initially be recognised at an amount equal to the fair value that such assets would have if they had a tax base equal to fair value. For those assets, the effect of not having such a tax base is recognised in the deferred tax balance. The Board decided to extend this principle to the initial recognition of all assets and liabilities that have a tax base that differs from their initial carrying amount, including those acquired within a business combination. The Board also decided to extend this principle to all assets and liabilities that are remeasured at fair value. The Board noted that doing this separates tax effects from the asset or liability. The Board noted that it would be helpful to include an example in the proposed amendments to IAS 12 that illustrates how this decision would reflect tax effects unique to an entity and tax effects expected by the market.

The Board decided to require deferred tax liabilities as well as deferred tax assets to be recognised for temporary differences arising on the initial recognition of goodwill.

However, the Basis for Conclusions to the proposed amendments should note that this decision is based on the proposals for goodwill set out in the Exposure Draft Amendments to IFRS 3. If the Board decides not to proceed with those proposals it will reconsider this decision. The Board decided not to reconsider its previous decisions on tax allocation and intragroup transfers before issuing the Exposure Draft.