IASB publishes amendments to IAS 12
May 07, 2021
On May 7, 2021, the International Accounting Standards Board (IASB) published "Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)" that clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations.
Background
The IFRS Interpretations Committee received a submission about IAS 12 Income Taxes and the recognition of deferred tax in relation to leases (when a lessee recognizes an asset and a liability at the lease commencement) and decommissioning obligations (when an entity recognizes a liability and includes the decommissioning costs in the cost of the item of of property, plant and equipment). The submitted fact pattern assumed that lease payments and decommissioning costs were deductible for tax purposes when paid and identified different approaches in practice.
The Committee discussed the submission and came to the conclusion that the matter was relevant and widespread, as there are various kinds of contracts and fact patterns affected. Moreover, the question as to whether tax deductions are attributable to a contract, a (single) asset/liability, or rather to cash flows, and as to which consequences this may have for determining temporary differences, is fundamental within IAS 12. Therefore, the Committee recommended that the IASB develop clarifying amendments to IAS 12.
The IASB discussed the issue and in July 2019 published an exposure draft of proposed clarifying amendments, which have now been finalized.
Changes
The main change in Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) is an exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption does not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of equal deferred tax assets and liabilities. This is also explained in the newly inserted paragraph IAS 12.22A.
Effective date and transition
The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Early adoption is permitted.
An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date.
Additional information
