The staff reported two FASB decisions to the Board:
- If income is taxed at different rates depending on whether that income is distributed to shareholders, the FASB decided that:
a) - Deferred tax assets or liabilities should be measured based on the undistributed rate.
b) To the extent that there is an obligation to distribute a portion of that income, recognise an asset or liability based on the difference between the distributed and undistributed rate.
- In determining the point at which deferred tax assets and liabilities should be adjusted for the effect of a change in tax laws or rates, the FASB decided that:
a) For operations within US taxing jurisdictions: to retain the current approach in SFAS 109, which requires the effect of a change in tax laws or tax rates to be recognised in the period of enactment. Changes in tax law are substantively enacted in the US only after the President signs the bill into law.
b) For operations beyond US taxing jurisdictions: to require an approach that is consistent with IFRSs. The IASB approach requires deferred tax assets and liabilities to be measured on the basis of tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The point in the legislative process when a tax change occurs depends on the characteristics of that process.
The FASB asked the IASB to consider whether similar wording could be added to IAS 12, ie that operations (including subsidiaries) within US taxing jurisdictions that apply IFRSs should reflect changes in the US tax laws on tax rates when they are enacted.
The Board noted that these decisions converged with its decisions on these matters. The Board also agreed to note in the amended IAS 12 that for US taxing jurisdictions the point of substantive enactment is when tax laws are enacted, as the FASB requested. As a result, any entity reporting under either IFRSs or US GAAP would recognise changes in tax laws and rates:
- In the period of enactment for operations within US taxing jurisdictions
- In the period of enactment or substantive enactment for operations outside US taxing jurisdictions
The Board discussed its previous decision to include as application guidance with IAS 12 a table showing what is regarded as the point of substantive enactment in various jurisdictions. It decided not to include such a table, but instead to explain the principle underlying the point at which law becomes substantively enacted.
The Board then considered a paper on the allocation of taxes to components of comprehensive income and equity. The Board decided to include in IAS 12 the requirements on allocation of taxes within SFAS 109, to the extent that those requirements do not conflict with the existing requirements of IAS 12. To the extent that the requirements conflict, ie those relating to the allocation of changes in tax effects previously recognised outside continuing operations, the Board expressed an interest in retaining the IAS 12 approach of recognising the changes outside continuing operations in the component of comprehensive income or equity in which the tax effect was originally recognised. The Board noted that some FASB members, when discussing the paper the previous week, had expressed a similar interest but had been concerned by the potential difficulties involved. The Board asked the FASB staff member who had raised these concerns to provide examples of the difficulties so that they could be discussed at the joint IASB/FASB meeting later in the week.