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IAS 37/IFRIC 6 – Levies charged for participation in a market on a specified date (new)

Date recorded:

The Committee received a request for clarification about whether IFRIC 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment should be applied by analogy to other levies charged for participation in a market on a specified date to identify the event that gives rise to a liability.

The two specific examples noted by the staff were 1) the bank levy assessed in the UK where the bank is taxed at the end of the reporting period and measured based on the carrying value of equity and liabilities and 2) a railway tax that is triggered if the entity is authorised to participate in its market on the first day of the annual reporting period and based as a percentage of revenues in the preceding annual period.

The request focuses on the date of recognition of the liability and whether analogy to IFRIC 6 should be made because the taxes on these example scenarios all refer to the taxes being conditional on the entity existing or participating in a particular activity at a specified date (similar to the decommissioning liability discussed in IFRIC 6).

Most of the Committee members were supportive of the Committee adding the project to their agenda as they acknowledged it is a significant issue in current practice and that IAS 37 was the real issue. The Committee generally supported having the staff perform additional analysis on the issue; however, most acknowledged that this issue would be challenging to address. One Committee member had concerns that the Board is having difficulty in revising IAS 37 and questioned whether the Committee could address the issue any sooner or better than the Board. One of the Board members in attendance noted that the Board was having difficulty on the measurement aspects of IAS 37 but that recognition had not been as problematic.

The Committee requested the staff to perform additional analysis around what are the characteristics in IAS 37 for recognition of the liability and to consider when the liability exists (i.e., should it be brought back into the previous period in the railway levy example). One of the Committee members raised two more questions for the staff to consider, those being whether any amount of the levy paid should be deferred as a prepaid asset (implications for interim reporting periods) and what the implications are when the tax year and the reporting entity's fiscal year end are not aligned.

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