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

Date recorded:

In May, the Committee received a request for clarification about whether, under certain circumstances, 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 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 staff performed additional analysis on the issue and identified two critical issues: a) whether, in the situations (UK bank levy, fees paid to the Federal Government by pharmaceutical manufacturers in the US, bank levy in Hungary, and the railway tax in France) described to the Committee, the obligating event is the participation in an activity on the date specified by the legislation, or whether other factors create an earlier obligation; and b) how to account in interim reporting periods in which the situations where the activity date/period and the calculation date/period fall in the same annual financial reporting period. The staff's position was to assess whether current guidance is sufficient to help preparers of financial statements and others to apply IFRSs to a range of facts and circumstances rather than to provide answers to each of the specific situations presented to them.

The Committee tentatively agreed with the staff observations that IFRIC 6 addresses a different set of circumstances from those present in the levies and is therefore not directly applicable, but because IAS 37 is the applicable standard and IFRIC 6 is an interpretation of IAS 37, any conclusions drawn on the application of IAS 37 to the levies must be consistent with the conclusions drawn in IFRIC 6.

The Committee also tentatively agreed with the staff's recommendation to provide guidance to: a) clarify the phrase "no realistic alternative settling the obligation created by the event", and b) to help with the recognition criterion in paragraph 14(a) of IAS 37 in those specific cases where the levy combines the two following features: i) the measurement of the levy is based on financial data in the previous annual financial reporting period; and ii) it is virtually certain at the end of the previous annual financial reporting period that the entity will have to pay the levy. The Committee acknowledged that this issue would be challenging to address and reaffirmed their decision to take the issue onto its agenda to reduce current diversity and to enable preparers to comply with the principles in IAS 37 and to reflect the economic reality of the levy and noted that the two issues noted above should be addressed in the one project.