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IASB tentatively agrees with recommendation of IFRS Interpretations Committee

 22 May 2014


The IASB discussed a recommendation from the IFRS Interpretations Committee to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.

At this meeting, the IASB tentatively agreed with the recommendation of the Interpretations Committee that the proposed amendments to IAS 12 Income Taxes should include an illustrative example that addresses the following aspects in the application of the existing principles in IAS 12:

  1. An unrealised loss on a debt instrument measured at fair value gives rise to a deductible temporary difference even if (i) the debt instrument holder expects to recover the carrying amount of the debt instrument by holding it to maturity and collecting all of the contractual cash flows, and (ii) the loss is not tax deductible until realised.
  2. An entity assesses the utilisation of deductible temporary differences related to unrealised losses on debt instruments measured at fair value in combination with other deductible temporary differences. If tax law, however, restricts the utilisation of deductible temporary differences so that they are deductible only against the taxable profits of a specific type, the entity still assesses utilisation of such deductible temporary differences in combination with other deductible temporary differences, but only of the appropriate type. An example of such a restriction could be, for example, that capital losses are deductible only against capital gains.
  3. An entity’s estimate of future taxable profit, made for the purposes of recognising deferred tax assets, assumes that it will recover an asset for more than its carrying amount, if the recovery of an asset for more than its carrying amount is probable.
  4. An entity excludes the tax deductions represented by existing deductible temporary differences from the probable future taxable profit against which those differences are assessed for utilisation. The IASB also tentatively agreed with the recommendation of the Interpretations Committee that it should propose an amendment to paragraphs 24‒31 of IAS 12 to clarify this point.
  5. The example should illustrate the assessment of the utilisation of deductible temporary differences when all three sources of taxable profits (ie future reversal of existing taxable temporary differences, future taxable profit and tax planning opportunities) are available but are insufficient in total to support the recognition of deferred tax assets for all of the deductible temporary differences.
  6. As a consequence of (e), the example should explain how an entity should determine the amount of deferred tax to recognise in OCI, compared to the amount that it should recognise in profit or loss, when the entity cannot recognise all deferred tax assets because it has insufficient future taxable profits. The Interpretations Committee noted that this determination should be on a reasonable pro-rata allocation, unless tax law requires a different allocation.

However, the IASB disagreed with the recommendation of the Interpretations Committee that items (a)‒(c) should only be addressed in an illustrative example. The IASB tentatively decided that these items should also be addressed by amending the mandatory guidance in IAS 12.

Finally, the IASB tentatively agreed with the recommendation of the Interpretations Committee that the illustrative example should explain the application of IAS 12 to debt instruments measured at fair value in accordance with IAS 39 as well as those measured at fair value in accordance with IFRS 9 Financial Instruments.

Fourteen IASB members agreed.

Next steps

The IASB will consider how to amend the mandatory guidance of IAS 12 to clarify items (a)‒(c), and the due process undertaken on the proposed amendments to IAS 12 at a future IASB meeting.

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