IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23) is set out in paragraphs 1⁠–⁠14 and Appendices A, B and C. IFRIC 23 is accompanied by Illustrative Examples and a Basis for Conclusions. The scope and authority of Interpretations are set out in the Preface to IFRS Standards.

IFRIC 23Uncertainty over Income Tax Treatments

Background

[Refer:Basis for Conclusions paragraphs BC1⁠–⁠BC3]

1

IAS 12 Income Taxes specifies requirements for current and deferred tax assets and liabilities. An entity applies the requirements in IAS 12 based on applicable tax laws. [Refer:IAS 12 paragraphs 46 and 47]

2

It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the taxation authority may affect an entity’s accounting for a current or deferred tax asset or liability.

3

In this Interpretation:

(a)

‘tax treatments’ refers to the treatments used by an entity or that it plans to use in its income tax filings.

(b)

‘taxation authority’ refers to the body or bodies that decide whether tax treatments are acceptable under tax law. This might include a court.

(c)

an ‘uncertain tax treatment’ is a tax treatment for which there is uncertainty over whether the relevant taxation authority will accept the tax treatment under tax law. For example, an entity’s decision not to submit any income tax filing in a tax jurisdiction, or not to include particular income in taxable profit, is an uncertain tax treatment if its acceptability is uncertain under tax law.

Scope

4

This Interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. In such a circumstance, an entity shall recognise and measure its current or deferred tax asset or liability applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this Interpretation.E1

[Refer:Basis for Conclusions paragraphs BC4⁠–⁠BC9]
E1

[IFRIC® Update, September 2019, Agenda Decision, ‘IAS 1 Presentation of Financial Statements—Presentation of Liabilities or Assets Related to Uncertain Tax Treatments’

The Committee received a request about the presentation of liabilities or assets related to uncertain tax treatments recognised applying IFRIC 23 Uncertainty over Income Tax Treatments (uncertain tax liabilities or assets). The request asked whether, in its statement of financial position, an entity is required to present uncertain tax liabilities as current (or deferred) tax liabilities or, instead, can present such liabilities within another line item such as provisions. A similar question could arise regarding uncertain tax assets.

...

The full text of the agenda decision is reproduced after paragraph 54(n) of IAS 1.] 

Issues

5

When there is uncertainty over income tax treatments, this Interpretation addresses:

(a)

whether an entity considers uncertain tax treatments separately; [Refer:paragraphs 6 and 7]

(b)

the assumptions an entity makes about the examination of tax treatments by taxation authorities; [Refer:paragraph 8]

(c)

how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; [Refer:paragraphs 9⁠–⁠12] and

(d)

how an entity considers changes in facts and circumstances. [Refer:paragraphs 13 and 14]

Consensus

Whether an entity considers uncertain tax treatments separately

6

An entity shall determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. In determining the approach that better predicts the resolution of the uncertainty, an entity might consider, for example, (a) how it prepares its income tax filings and supports tax treatments; or (b) how the entity expects the taxation authority to make its examination and resolve issues that might arise from that examination.

[Refer:

Basis for Conclusions paragraph BC10

Illustrative Examples, example 1 paragraph IE3 and example 2 paragraph IE7]

7

If, applying paragraph 6, an entity considers more than one uncertain tax treatment together, the entity shall read references to an ‘uncertain tax treatment’ in this Interpretation as referring to the group of uncertain tax treatments considered together.

Examination by taxation authorities

8

In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, an entity shall assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. [Refer:Basis for Conclusions paragraphs BC11⁠–⁠BC13]

Determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates

9

An entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. [Refer:Basis for Conclusions paragraphs BC14⁠–⁠BC16]

10

If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings.

11

If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates. [Refer:Basis for Conclusions paragraphs BC15 and BC16] An entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, [Refer:Basis for Conclusions paragraphs BC17⁠–⁠BC19] depending on which method the entity expects to better predict the resolution of the uncertainty:

(a)

the most likely amount—the single most likely amount in a range of possible outcomes. The most likely amount may better predict the resolution of the uncertainty if the possible outcomes are binary or are concentrated on one value. [Refer:Illustrative Examples, example 2]

(b)

the expected value—the sum of the probability‑weighted amounts in a range of possible outcomes. The expected value may better predict the resolution of the uncertainty if there is a range of possible outcomes that are neither binary nor concentrated on one value. [Refer:Illustrative Examples, example 1]

12

If an uncertain tax treatment affects current tax and deferred tax (for example, if it affects both taxable profit used to determine current tax and tax bases used to determine deferred tax), an entity shall make consistent judgements and estimates for both current tax and deferred tax. [Refer:Illustrative Examples, example 2 paragraph IE10]

Changes in facts and circumstances

[Refer:Appendix A paragraphs A1⁠–⁠A3]

13

An entity shall reassess a judgement or estimate required by this Interpretation if the facts and circumstances on which the judgement or estimate was based change or as a result of new information that affects the judgement or estimate. For example, a change in facts and circumstances might change an entity’s conclusions about the acceptability of a tax treatment or the entity’s estimate of the effect of uncertainty, or both. Paragraphs A1⁠–⁠A3 set out guidance on changes in facts and circumstances.

[Refer:Basis for Conclusions paragraph BC20]

14

An entity shall reflect the effect of a change in facts and circumstances or of new information as a change in accounting estimate applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. [Refer:Basis for Conclusions paragraph BC21 and IAS 8 paragraph 36] An entity shall apply IAS 10 Events after the Reporting Period to determine whether a change that occurs after the reporting period is an adjusting [Refer:IAS 10 paragraph 3(a) (definition of adjusting events after the reporting period)] or non‑adjusting event. [Refer:IAS 10 paragraph 3(b) (definition of non-adjusting events after the reporting period)]

[Note:refer to Appendix A paragraphs A4 and A5 for disclosure requirements when there is uncertainty over income tax treatments]

Appendices

Appendix AApplication Guidance

This appendix is an integral part of IFRIC 23 and has the same authority as the other parts of IFRIC 23.

Changes in facts and circumstances (paragraph 13)

A1

In applying paragraph 13 of this Interpretation, an entity shall assess the relevance and effect of a change in facts and circumstances or of new information in the context of applicable tax laws. For example, a particular event might result in the reassessment of a judgement or estimate made for one tax treatment but not another, if those tax treatments are subject to different tax laws.

A2

Examples of changes in facts and circumstances or new information that, depending on the circumstances, can result in the reassessment of a judgement or estimate required by this Interpretation include, but are not limited to, the following:

(a)

examinations or actions by a taxation authority. For example:

(i)

agreement or disagreement by the taxation authority with the tax treatment or a similar tax treatment used by the entity;

(ii)

information that the taxation authority has agreed or disagreed with a similar tax treatment used by another entity; and

(iii)

information about the amount received or paid to settle a similar tax treatment.

(b)

changes in rules established by a taxation authority.

(c)

the expiry of a taxation authority’s right to examine or re-examine a tax treatment.

A3

The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgements and estimates required by this Interpretation.

Disclosure

[Refer:Basis for Conclusions paragraph BC22]

A4

When there is uncertainty over income tax treatments, an entity shall determine whether to disclose:

(a)

judgements made in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates applying paragraph 122 of IAS 1 Presentation of Financial Statements; and

(b)

information about the assumptions and estimates made in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates applying paragraphs 125⁠–⁠129 of IAS 1.

A5

If an entity concludes it is probable that a taxation authority will accept an uncertain tax treatment, the entity shall determine whether to disclose the potential effect of the uncertainty as a tax‑related contingency applying paragraph 88 of IAS 12.

Appendix BEffective date and transition

This appendix is an integral part of IFRIC 23 and has the same authority as the other parts of IFRIC 23.

Effective date

B1

An entity shall apply this Interpretation for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted. If an entity applies this Interpretation for an earlier period, it shall disclose that fact.

Transition

[Refer:Basis for Conclusions paragraph BC25]

B2

On initial application, an entity shall apply this Interpretation either:

(a)

retrospectively applying IAS 8, if that is possible without the use of hindsight; or

(b)

retrospectively with the cumulative effect of initially applying the Interpretation recognised at the date of initial application. If an entity selects this transition approach, it shall not restate comparative information. Instead, the entity shall recognise the cumulative effect of initially applying the Interpretation as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate). The date of initial application is the beginning of the annual reporting period in which an entity first applies this Interpretation.

Appendix C

An entity shall apply the amendment in this Appendix when it applies IFRIC 23.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2017 have been incorporated into the text of the relevant Standards included in this volume.