07/01/2015 - EFRAG's final comment letter on the IASB proposed amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
On 20 August 2014, the IASB published the Exposure Draft ED/2014/3 Recognition of Deferred Tax Assets for Unrealised Losses (Proposed Amendments to IAS 12) (the ED). The ED proposes to:
- confirm that decreases in the carrying amount of a fixed-rate debt instrument for which the principal is paid on maturity give rise to a deductible temporary difference if this debt instrument is measured at fair value and if its tax base remains at cost. This applies irrespective of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use, ie by holding it to maturity, or whether it is probable that the issuer will pay all the contractual cash flows;
- clarify the extent to which an entity's estimate of future taxable profit includes amounts from recovering assets for more than their carrying amounts;
- clarify that an entity's estimate of future taxable profit excludes tax deductions resulting from the reversal of deductible temporary differences; and
- clarify that an entity assesses whether to recognise the tax effect of a deductible temporary difference as a deferred tax asset in combination with other deferred tax assets. If tax law restricts the utilisation of tax losses so that an entity can only deduct tax losses against income of a specified type or specified types (eg if it can deduct capital losses only against capital gains), the entity must still assess a deferred tax asset in combination with other deferred tax assets, but only with deferred tax assets of the appropriate type.
EFRAG supports the core of the proposals in the ED. However, EFRAG has some concerns and wording suggestions that we recommend are taken into account when finalising the amendments to ensure that the welcomed clarifications are fully effective.
EFRAG's comment letter is available here: