The genesis of the Interpretation is a request to the IFRS Interpretations Committee to determine whether, under certain circumstances, IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment should be applied to other levies charged for participation in a market on a specified date to identify the event that gives rise to a liability.
The specific examples provided to the Committee included the United Kingdom bank levy, fees paid to the Federal Government by pharmaceutical manufacturers in the United States, a bank levy in Hungary, and the railway tax in France. The final Interpretation covers a broad range of levies, rather than a focus on levies charged to participate in a market.
The key issues considered by the Committe in developing the Interpretation included when a liability should be recognised and to the definition of a present obligation in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
The Committee published a draft Interpretation in May 2012 and concluded redeliberations in the first quarter of 2013. The IASB ratified the Interpretation at its April 2013 meeting.
Requirements of the Interpretation
IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. The Interpretation clarifies that 'economic compulsion' and the going concern principle do not create or imply that an obligating event has occurred.
IFRIC 21 provides the following guidance on recognition of a liability to pay levies:
- The liability is recognised progressively if the obligating event occurs over a period of time
- If an obligation is triggered on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached.
The same recognition principles are applied in interim financial reports.
The Interpretation provides numerous examples to provide guidance on its application. For instance, the Interpretation provides the example of a levy that is triggered by operating as a bank at the end of the reporting period. In applying the requirements of the Interpretation, the obligating event is considered to be operating as a bank on the last day of the reporting period and so the liability for the levy is not recognised prior to that date. Furthermore, the levy would only be recognised in any interim report that covers the period including the last day of the annual reporting period.
A full summary and history of the Interpretation can be found on our summary page for IFRIC 21.
Changes made in finalising the Interpretation
The IFRS Interpretations Committee made a number of changes from the original proposals in Draft Interpretation DI/2012/1 Levies Charged by Public Authorities on Entities that Operate in a Specific Market as a result of its redeliberations, including:
- Broadening the scope to include all levies, rather than a focus on levies charged to participate in a market
- New guidance on how to account for levies that have a minimum threshold
- Removing guidance on determining whether a liability to pay a levy gives rise to an asset or expense
- Excluding emissions trading schemes from the scope of the Interpretation (as this topic is subject to an IASB project)
Interaction with other pronouncements and effective date
The Interpretation does not supersede IFRIC 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, which remains in force and is consistent with IFRIC 21. The IFRS Interpretations Committee believes IFRIC 6 provides useful information on accounting for liabilities within its scope.
IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. Initial application is in accordance with the requirements of IAS 8 Accounting Policies, Changes in Estimates and Errors, i.e. the requirements are applied on a retrospective basis.
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