13/09/2019 - EFRAG draft comment letter on the IASB exposure draft ED/2019/5 Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Proposed amendment 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 the IASB comment period ending on 14 November 2019.
The ED addresses the uncertainty in practice about 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 liability on initial recognition and may result in temporary differences of the same amount. Currently, 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 a transaction that at the time of the transaction gives rise to equal and offsetting amounts of taxable and deductible temporary differences.
EFRAG supports the IASB's effort to address the current diversity in initial recognition exemption of deferred tax for single transactions that give rise to an asset and liability. However, EFRAG questions whether the IASB's approach ('gross method') that considers the unit of account in IAS 12 as being the asset and the liability rather than as a single transaction is the best approach given the complexity. EFRAG also has concerns with the recogniton 'cap' in paragraph 22A(b) for a deferred tax liability, and the consequences of this proposal in subsequent periods.
The draft comment letter is available here.
EFRAG requests comments on its draft comment letter by 25 October 2019. You can comment on EFRAG's draft comment letter by clicking on the 'Comment publication' link below.