14/11/2019 - EFRAG final comment letter on the IASB exposure draft ED/2019/5 Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Proposed amendments to IAS 12
EFRAG has published its final comment letter in response to the IASB's Exposure Draft ED/2019/5 Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Proposed amendments to IAS 12.
On 17 July 2019, the IASB issued Exposure Draft ED/2019/5 Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Proposed amendments to IAS 12 ('the ED') with a comment period ending on 14 November 2019.
The ED addresses how an entity applies the initial recognition exemption in paragraphs 15 and 24 of IAS 12 Income Taxes to transactions that give rise to both an asset and a liability on initial recognition and may result in temporary differences of the same amount. In some cases, the exemption is applied, and in other cases it is not. Under the proposed amendments, the initial recognition exemption in IAS 12 would not apply to transactions that at the time of the transaction give rise to equal and offsetting amounts of taxable and deductible temporary differences.
EFRAG supports the IASB's efforts to address the current diversity in the initial recognition of deferred tax related to assets and liabilities arising from a single transaction.
However, EFRAG considers that the proposals add complexity to the understanding of what is being suggested, by adding an exception to an existing exemption . We also have concerns with the recognition 'cap' in paragraph 22A(b) of the ED and the complexity it adds to accounting in subsequent periods. EFRAG considers the scope of the ED to be broader than leases and decommissioning obligations and other transactions are likely to fall within its remits. The ED does not address the implications and potential consequences of a wider scope. Therefore, one way forward would be for the IASB to consider applying the proposals only to lease transactions.
Given the complexities introduced by the proposals, EFRAG has considered whether the gross approach under the proposals is the better solution to address the issue and notes pros and cons of the gross and net approach.
The final comment letter is available here.