The IFRS Interpretation Committee and IASB staff have received many questions on IAS 12, indicating that the standard is sometimes difficult to apply. Income tax was also frequently identified as a source of significant reconciling items for US-listed foreign registrants applying IFRSs.

The project began in 2002 as one of the topics for short-term convergence under the  Memorandum of Understanding (MoU) between the IASB and the FASB.

The Board published an exposure draft of an IFRS to replace IAS 12 in March 2009 and the comment period ended on 31 July 2009.

In the October 2009 joint meeting with the FASB, both boards indicated that they would consider undertaking a fundamental review of accounting for income taxes at sometime in future.

In the meantime, the IASB began developing proposals for more limited amendments.

In the March 2010 Board meeting, the Board decided that the scope of the project should be to consider the following practice issues:

• Uncertain tax positions, but only after the  revision of IAS 37 is finalised 
• Deferred tax on property remeasurement at fair value

The Board also directed the staff to pursue the following proposals that were generally supported by respondents to the exposure draft issued in March 2009:

• the introduction of an initial step to consider whether the recovery of an asset or settlement of liability will affect taxable profit 
• the recognition of a deferred tax asset in full and an offsetting valuation allowance to the extent necessary 
• guidance on assessing the need for a valuation allowance 
• guidance on substantive enactment 
• the allocation of current and deferred taxes within a group that files a consolidated tax return

The Board also intended to explore the treatment of the tax effect of dividends paid by entities such as real estate investment trusts and co-operative societies.

In 2010, the Board:

• published amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets.
• suspended its other work on income taxes to focus its work on projects with higher priorities. After the Board completes its agenda consultation [link], it will consider whether to perform work further on income taxes, such as a continuation of its previous work or a more fundamental review of accounting for income taxes.