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IAS 12 — Recognition of deferred tax assets for unrealised losses

Date recorded:

The project manager opened the session by introducing the agenda paper. The agenda paper summarised an issue regarding unrealised tax losses. The IFRS Interpretations Committee had previously discussed the issue and had recommended to the Board to address the issue in a narrow-scope amendment to IAS 12. The project manager notified the Board that the FASB had discussed a similar issue at the same time as part of their financial instruments project. The FASB issue was pertaining to deferred tax assets for similar instruments. The FASB had proposed to assess realisation of deferred tax assets related to debt instruments measured at fair value through OCI separately from the realisation of other deferred tax assets. The Interpretations Committee discussed the FASB proposal but concluded that it did not see the economic benefit of additional deferred tax assets arising from this assessment and decided not to amend IAS 12 for separate assessments. The project manager said that after finalisation of the agenda papers, the FASB took notice of the decision and reversed its own decision on grounds of the Interpretation Committee’s decision. The Interpretations Committee decided that deferred tax assets on instruments measured at fair value through OCI should be recognised unless the entity was in a tax loss position. The IFRS Interpretations Committee recommended to the IASB to add an illustrative example to the standard in order to address three application problems in relation to this issue. In addition it recommended amending the standard itself to require that the probable future taxable profit against which existing deductible temporary differences were assessed for utilisation excluded the tax deductions represented by those deductible temporary differences. The project manager asked the Board whether they had any comments on the staff paper and whether they agreed with the Interpretation Committee’s recommendation.

One Board member asked whether this would be effective once published. The Director of Implementation Activities replied that the amendment would follow the due process and constituents should have sufficient time to comment and prepare. With regards to transition he said that Staff would prepare a due process paper for the next meeting. The Board member asked whether Staff had thought about transition. The project manager negated that. The Board member said that potential use of hindsight should be considered when developing transition guidance.

Another Board member expressed strong concerns about the delivery mechanism of the guidance. He said that illustrative examples were not part of the mandatory guidance. He preferred an amendment of the mandatory guidance as the issue was about an interpretation of mandatory guidance. The Director for Implementation Activities replied that the proposed way was the Interpretation Committee’s preferred way to address the issue. A Board member said that this would cause problems with enforcers. A fellow Board member said he preferred an agenda decision to the proposed example and asked whether the example would lead to an error for past assessments. The Director of Implementation Activities said it should rather be seen as an interpretation issue than an error. One Board member said that the Interpretation Committee’s recommendation should be followed as it had been discussed and considered by the Committee at length. The Vice-Chairman asked whether the issue could be addressed in one document if it were an official interpretation. The Director of Implementation Activities said that the issue was unfit for an interpretation. He said that the comment letters received said that one of the three application issues (combined assessment of deferred tax assets) was not really an issue in practice. Hence, only an illustrative example was needed. Another one of the application issues (debt instruments held to maturity) could be addressed in the body of the standard. The third application issue (recovery of an asset for more than its carrying amount) was seen unfit to be included in the standard by the Interpretations Committee. The Board discussed if this topic really needed guidance but concluded that there was diversity in practice for this issue.

The Vice-Chairman proposed to follow the Interpretation Committee’s recommendation, but to put smaller examples in the body of IAS 12 as an addition to the proposal. One Board member said that it did not even need to be examples and that it might be sufficient to amend certain paragraphs of IAS 12. Another Board member asked whether the Committee had explicitly discussed in which part of the standard they wanted the guidance. This was negated by the project manager.

The Vice-Chairman concluded that the Board wanted some guidance in the body of the standard and a comprehensive example in the accompanying documents to the standard. He proposed to ask Staff to draft a concept of how the guidance would be delivered and to bring it to the next Board meeting. The Board would then decide whether Staff could begin drafting an exposure draft on this basis. The Board agreed with the proposal.

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