Tentative agenda decisions available for comment

Tentative agenda decisions from March 2013

The Interpretations Committee reviewed the following matters and tentatively decided that they should not be added to the Interpretations Committee’s agenda. These tentative decisions, including recommended reasons for not adding the items to the Interpretations Committee’s agenda, will be reconsidered at the Interpretations Committee meeting in July 2013. Interested parties who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to email those concerns by 27 May 2013 to ifric@ifrs.org. Correspondence will be placed on the public record unless the writer requests confidentiality, supported by good reason, such as commercial confidence.

IAS 19 Employee Benefits—Pre-tax or post-tax discount rate

The Interpretations Committee received a request for guidance on the calculation of defined benefit obligations. In particular, the submitter asked the Interpretations Committee to clarify whether, in accordance with IAS 19 Employee Benefits (2011), the discount rate used to calculate a defined benefit liability should
be a pre-tax or post-tax rate.

The tax regime in the jurisdiction of the submitter can be summarised as follows:

a. the entity receives a tax deduction for contributions that are made to the plan;
b. the plan pays tax on the contributions received and on the investment income earned; but
c. the plan does not receive a tax deduction for the benefits paid.

The Interpretations Committee noted that:

a. paragraph 76(b)(iv) of IAS 19 (2011) mentions only taxes on contributions and benefits payable within the context of measuring the defined benefit obligation;

b. paragraph 130 of IAS 19 (2011) states that: in determining the return on plan assets, an entity deducts the costs of managing the plan assets and any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the defined benefit obligation; and

c. according to paragraph BC130 of IAS 19 (2011) the measurement of the obligations should be independent of the measurement of any plan assets actually held by the plan.

Consequently, the Interpretations Committee observed that the discount rate used to calculate a defined benefit obligation should be a pre-tax discount rate.

On the basis of the analysis above the Interpretations Committee [decided] not to add this issue to its agenda.

Observer note: Agenda Paper 15 (March 2013)
Meeting audio: Agenda Paper 15 (March 2013)