Document icon

Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Description

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'). The ED addresses uncertainty in practice about how an entity applies the initial recognition exemption in paragraphs 15 and 24 of IAS 12 to transactions that give rise to both an asset and 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 issued its Draft Comment Letter on 13 September 2019 and its Final Comment Letter on 14 November 2019.  EFRAG supported 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 considered that the proposals add complexity to the application of IAS 12, by adding an exception to an existing exemption. EFRAG also had concerns with the recognition 'cap' in paragraph 22A(b) of the ED and the complexity it adds to accounting in subsequent periods.  EFRAG considered 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 did not address the implications and potential consequences of a wider scope.  Therefore, one way forward would be for the IASB to restrict the scope of the proposals only to lease transactions.

 
Given the complexities introduced by the proposals, EFRAG considered whether the gross approach under the proposals could be a better solution to address the issue and noted pros and cons of the gross and net approach.

 
At this stage, it is expected that the IASB would provide the feedback on the ED in Q4 2020. The EFRAG project team continue monitoring project developments.
Show more...

Documents

Project news