The IFRS Interpretations Committee (Committee) discussed the following matter and tentatively decided not to add it to its standard-setting agenda. The Committee will reconsider this tentative decision, including the reasons for not adding the matter to its standard-setting agenda, at a future meeting. The Committee invites comments on its tentative agenda decision. All comments will be on the public record and posted on our website unless a responder requests confidentiality and we grant that request. We do not normally grant such requests unless they are supported by good reason, for example, commercial confidence.
The Committee received a request about deferred tax when the recovery of the carrying amount of an asset gives rise to multiple tax consequences. In the fact pattern described in the request:
The request asked how the entity determines the tax base of the asset and, consequently, how it recognises and measures deferred tax.
The fundamental principle in IAS 12
The fundamental principle upon which IAS 12 is based (as stated in paragraph 10 of IAS 12) is that ‘an entity shall, with certain limited exceptions, recognise a deferred tax liability (asset) whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences’.
Applying the fundamental principle to the fact pattern
The recovery of the asset’s carrying amount gives rise to two distinct tax consequences—it results in taxable economic benefits from use and a capital gain deduction that cannot be offset in determining taxable profit. Accordingly, applying the fundamental principle in IAS 12, an entity reflects separately these distinct tax consequences of recovering the asset’s carrying amount.
An entity identifies temporary differences in a manner that reflects these distinct tax consequences by comparing:
In the fact pattern described in the request, the Committee concluded that the entity identifies both:
The entity then applies the requirements in IAS 12 considering the applicable tax law in recognising and measuring deferred tax for the identified temporary differences.
The Committee concluded that the principles and requirements in IAS 12 provide an adequate basis for an entity to recognise and measure deferred tax in the fact pattern described in the request. Consequently, the Committee decided not to add the matter to its standard-setting agenda.
The deadline for commenting on the proposals is 14 February 2020. The Committee will consider all comments received in writing by that date; agenda papers analysing comments received will include analysis only of comments received by that date.