Tentative agenda decisions currently available for comment
The Interpretations Committee reviewed the following matters and tentatively decided that they should not be added to the Committee’s agenda. These tentative decisions, including recommended reasons for not adding the items to the Committee’s agenda, will be reconsidered at the Committee meeting in July 2012. Constituents who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to e-mail those concerns by 22 May 2012 to: ifric@ifrs.org. Communications will be placed on the public record unless the writer requests confidentiality, supported by good reason, such as commercial confidence.
IAS 1 Presentation of Financial Statements and IAS 12 Income Taxes—Presentation of payments of non-income taxes
The Interpretations Committee received a request seeking clarification of whether production-based royalty payments payable to one taxation authority that are claimed as an allowance against taxable profit of another taxation authority should be presented as an operating expense or a tax expense in the statement of comprehensive income. As the basis for this request, the submitter assumed that the production-based royalty payments are, in themselves, outside the scope of IAS 12 Income Taxes while the tax payable to the other taxation authority is within the scope of IAS 12. The Committee used this same premise when discussing the issue.
The Committee observed that the line item of ‘tax expense’ that is required by paragraph 82(d) of IAS 1 Presentation of Financial Statements is intended to require an entity to present taxes that meet the definition of income taxes under IAS 12. The Committee also noted that it is the basis of the calculation that determines whether a tax meets the definition of an income tax. Neither the manner of settlement of a tax liability nor the factors relating to recipients of the tax is a determinant of whether an item meets that definition.
The Committee further noted that royalty payments should not be treated differently from other expenses that are outside the scope of IAS 12, all of which may reduce income tax payable. Accordingly, because the production-based royalties do not meet the definition of an income tax they should not be presented as an income tax expense in the statement of comprehensive income.
On the basis of applying the analysis above the Committee [decided] not to add this issue to its agenda.
Observer note: Agenda Paper 8 and 8A (March 2012)
Meeting Audio: Agenda Paper 8 (March 2012)
IAS 12 Income Taxes—Accounting for market value uplifts introduced by a new tax regime
The Interpretations Committee received a request to clarify the accounting for market value uplifts introduced in a proposed tax regime in a jurisdiction.
In calculating taxable profit under the proposed tax regime, entities will be permitted to calculate tax depreciation for certain mining assets using the fair value of the assets as of a particular date as the ‘starting base allowance’, rather than the cost or carrying value of the assets. If there is insufficient profit against which the annual tax depreciation can be used, it is carried forward and is able to be used as a deduction against taxable profit in future years.
The Committee noted that the starting base allowance, including the part that is attributable to the fair value uplift, is attributed to the related assets under the tax regime and will become the basis for depreciation expense for tax purposes. Consequently, the market value uplift forms part of the related asset’s ‘tax base’, as defined in paragraph 5 of IAS 12. The committee observed that IAS 12 requires an entity to reflect an adjustment to the tax base of an asset that is due to an increase in the deductions available as a deductible temporary difference. Accordingly, the Committee noted that a deferred tax asset should be recognised to the extent it meets the recognition criteria in paragraph 24 of IAS 12.
On the basis of applying the analysis above, the Committee [decided] not to add this issue to its agenda.
Observer note: Agenda Paper 9 and 9A (March 2012)
Meeting Audio: Agenda Paper 9 (March 2012)