The Board had reviewed a pre-ballot draft of the exposure draft (ED) of amendments to IAS 12 Income Taxes. One Board member noted a possible wish to express an alternative view on the ED, depending on the decisions to be made on the issues at the meeting and further developments in drafting the ED.
The Board discussed issues arising from Board members� comments and those of subject matter experts on the pre-ballot draft. The Board tentatively decided that:
- the ED should take the form of a draft IFRS, not amendments to IAS 12.
- the body of the proposed standard should not cross-refer to the examples in the implementation guidance, but those examples should refer to the paragraphs in the standard that they illustrate. Any examples necessary for an understanding of the proposed requirements should appear in the standard or application guidance.
- equity instruments issued by the entity should not be regarded as having a tax basis. Instead, if those equity instruments have tax consequences that will occur without any change to the carrying amount in equity, those consequences should be regarded as relating to items that have a tax basis but no asset or liability carrying amount.
- when foreign subsidiaries cease to be subsidiaries or when foreign investments become subsidiaries, the resulting changes in deferred tax assets and liabilities should be treated in the same way as disposals and step-acquisitions in IFRS 3 Business Combinations (as revised in 2008).
- tax rates should be regarded as substantively enacted when future events required by the enactment process historically have not affected the outcome and are unlikely to do so. The basis for conclusions should not state that national standards may wish to give jurisdictional guidance on this matter.
- the disclosures should focus on changes in the amounts recognised, and no further disclosures should be proposed relating to the difference between the recognised amounts and the amounts claimed in the tax return.
- the effects of changes in uncertain tax positions should be recognised in continuing operations, even if the related tax assets and liabilities were originally recognised in another component of comprehensive income or equity. The Basis for Conclusions should explain why this is consistent with the proposals on tax uncertainties and intra-period allocation.
- the proposed transitional requirements for first-time adopters of IFRSs should be removed, leaving the existing requirements of IFRS 1 to apply.
The Board also confirmed the following tentative decisions made earlier in the project:
- the ED should include the proposed requirements on intra-period tax allocation from the US standard SFAS 109. Those include a general prohibition on tracking changes in recognised tax assets and liabilities back to the components of comprehensive income and equity in which the tax was originally recognised. The basis for conclusions should give examples of such tracking.
- when a temporary difference arises on the initial recognition of an asset or liability, an entity should:
(a) separate the asset or liability that resulted in an initial temporary difference into two items:
(i) an asset or liability with a tax basis available to market participants in a transaction for the individual asset or liability in that tax jurisdiction and
(ii) a tax advantage or disadvantage arising from any difference between the tax basis described in (i) and the tax basis available to the entity.
(b) measure the asset or liability in (a)(i) in accordance with the IFRSs applicable to that asset or liability, excluding any entity-specific tax effects.
(c) recognise a deferred tax asset or liability for the temporary difference between the carrying amount of the asset or liability and the tax basis available to the entity. This deferred tax asset or liability is consistent with the other deferred tax assets or liabilities determined in accordance with IAS 12.
(d) recognise a premium or allowance if the transaction does not affect comprehensive income, equity or taxable profit at the time of the transaction and is not a business combination. The premium or allowance would be part of the deferred tax asset or liability. After the inclusion of that premium or allowance, the sum of: (i) the initial carrying amounts of the asset or liability and (ii) the related deferred tax asset and liability would equal the transaction price.
- an entity�s expectations do not affect the tax basis, which is determined by the deductions that will be available on sale of the asset or settlement of the liability. But the entity�s expectations about the way in which the asset or liability will be recovered or settled do affect
(a) whether any difference between the carrying amount and the tax basis is a temporary difference and
(b) the rate used to measure any temporary difference.
- entities should not recognise a deferred tax liability or asset for temporary differences arising on investments in foreign subsidiaries and joint ventures to the extent that the investment is permanent in duration. When an entity recognises a deferred tax asset resulting from such a temporary difference, it should assess the need for a valuation allowance in the same way as for any other deferred tax asset (see below).
- there should be a two-step approach for deferred tax assets:
(a) a deferred tax asset is recognised for the tax effect of the full amount that an entity is entitled to receive in deductions in the future, measured at an amount that includes the effect of any uncertainty over what deductions the tax authority may allow.
(b) a valuation allowance is recognised so that it is more likely than not that there will be sufficient future taxable profit to utilise the net amount of the deferred tax asset and the valuation allowance.
- this project should not introduce discounting for deferred tax assets arising from unused tax losses and tax credits.
- an entity should make an accounting policy decision on how to classify interest and penalties payable to tax authorities.