Thursday 08 December 2016
Request for clarification of the calculation of deferred tax in circumstances in which the entity holds a subsidiary which has a single asset within it.
The Interpretations Committee received a request to clarify the accounting for deferred tax in the consolidated financial statements of the parent, when the subsidiary has only one single asset within it ('the asset inside') and the parent expects to recover the carrying amount of the asset inside by selling the shares in the subsidiary ('the shares'). Specifically, the question asked was whether the tax base that is described in paragraph 11 of IAS 12 Income Taxes and used to calculate the deferred tax should be the tax base of the asset inside or the tax base of the shares.
The Interpretations Committee noted significant diversity in practice in accounting for deferred tax when tax law attributes separate tax bases to the asset inside and the parent's investment in the shares and each tax base is separately deductible for tax purposes:
The Interpretations Committee also noted that current IAS 12 requires the parent to recognise both the deferred tax related to the asset inside and the deferred tax related to the shares, if tax law considers the asset inside and the shares to be two separate assets and if no specific exceptions in IAS 12 apply.
Considering however the concerns raised by commentators in respect of these requirements in current IAS 12, the Interpretations Committee decided not to recommend an Annual Improvement to the IASB in this meeting but to explore further options to address this issue that would result in a different accounting for this specific type of transactions.
Consequently, the Interpretations Committee asked the staff to analyse whether the requirements of IAS 12 should be amended in response to the concerns raised by commentators. The Interpretations Committee noted that such amendments would be more than simply clarifying or correcting in nature and therefore beyond the scope of the Annual Improvements project. However targeted amendments to IAS 12 that are narrow in scope could be developed by the Interpretations Committee in consultation with the IASB as separate amendments to IAS 12.
After consulting IASB members on the issue in various meetings in December 2013, the staff presented its analysis whether the requirements of IAS 12 should be amended in response to the concerns raised by commentators at the Interpretations Committee meeting in March 2014. On the basis of this analysis, the Interpretations Committee tentatively decided not to take this issue to its agenda but instead to recommend to the IASB that it should analyse and assess these concerns in its research project on Income Taxes.
The Interpretations Committee finalised its agenda decision with only small changes to the wording at its meeting in July 2014.
The Interpretations Committee finalises its agenda decision
The Interpretations Committee issues a revised tentative agenda decision
The Interpretations Committee decided to explore options to address the issue
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