IAS 12 – Recognition of deferred tax for single assets in a corporate entity (new)
The Committee received a request for clarification relating to whether the expected manner of recovery in paragraph 51 of IAS 12 Income Taxes should in any circumstances reflect disposal of the shares of the entity holding the asset (a corporate wrapper) rather than disposal of the asset itself. Specifically, the issue considered involved the measurement of deferred tax resulting from the subsequent measurement of an investment property at fair value.
The Committee observed that the question was asked because of an underlying concern relating to IAS 12 as to how deferred tax should be calculated for assets accounted for at fair value.
The Committee, considering the guidance in paragraphs 35-39 of IAS 12, noted that the requirements in IAS 12 are clear that the expected manner of recovery should reflect recovery of both:
- investment property when measuring a deferred tax liability for the investment property itself (i.e., an inside basis difference); and
- investment in a corporate wrapper when measuring a deferred tax liability for investment in the corporate wrapper (i.e., an outside basis difference).
An entity would be required to recognise both forms of deferred tax (i.e., the asset and the corporate wrapper) unless meeting the exceptions described in paragraph 39 of IAS 12 which would eliminate the requirement to recognise the outside basis deferred tax difference. The Committee noted that an entity is unable to avoid recognition of the inside basis deferred tax difference.
Given clarity in current guidance, the Committee tentatively decided not to add this issue to its agenda.