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IAS 12 – Recognition of deferred tax for single assets in a corporate entity (review of tentative agenda decision)

Date recorded:

At its September meeting, the Committee considered 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. However, the Committee made the tentative decision not to add this issue to its agenda based on clarity of guidance.

The Committee received 5 comment letters from its tentative agenda decision published in the September 2011 IFRIC Update. All comment letters either supported or did not object to the Committee's decision not to take this issue to its agenda. However, comment letters expressed certain concerns, including: broader concerns relating to the principles of IAS 12, apparent inconsistencies in the wording of the tentative agenda decision, the inappropriateness of providing what is perceived to be interpretative guidance in an agenda decision and a general belief that the Committee's de facto interpretation does not provide a faithful representation of the underlying commercial reality of these transactions.

Based on this feedback, the staff recommended undertaking outreach with the National Standard Setters group and International Organization of Securities Commissions (IOSCO) to determine whether the issue is widespread and has practical relevance, and whether the issue indicates that there are significant divergent interpretations.

In considering the staff's recommendation, many Committee members expressed the lack of a perceived need for further outreach, as they believed that it was clear that the issue was widespread and either emerging or already existing divergence in practice existed. One Committee member expressed a preference to issue an agenda decision which removed the interpretative guidance and stated only that the issue was too broad to be addressed by the Committee; believing that the issue speaks to fundamental concerns with IAS 12, while others felt that the apparent diversity gave rise to the need for an annual improvement project.

When put to a vote, the Committee tentatively confirmed the recommendation of the staff, in which the staff will carry out further outreach regarding the practical relevance and divergent interpretations on this issue. The staff will report on its outreach at the January 2012 Committee meeting, and present recommendations derived from the results of the outreach.

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