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IAS 12 — Recognising deferred tax assets for unrealised losses on AFS debt securities

Date recorded:

The Committee had a longer debate on this Agenda Decision. A number of comment letters had been received, many of them opposing the Tentative Agenda Decision or, at best, suggesting modifications.

The Committee noted that a similar issue was under consideration, and a similar conclusion reached, in the FASB's recent Financial Instruments exposure draft. The FASB's position in the ED reflected the 'informal' position of the US Securities and Exchange Commission staff. Assuming that the Committee's Agenda Decision and the FASB's position as exposed in its ED were confirmed, there would be convergence on this issue.

While some Committee members would have preferred to address this via Annual Improvements, the Committee confirmed the Agenda Decision (two opposed), subject to amending the reasons along the lines suggested by one respondent as follows:

The Committee noted that the objectives of IAS 12 and the deferred tax recognition principle relating to deductible temporary differences are based on recovering or settling the carrying amount of the asset or liability at the reporting date. The Committee also noted that preventing losses from being realised is not the same as or similar to creating or increasing taxable income. Based on the requirement to recognise deferred tax assets only when it is probable that they will be realised, paragraph 30 of IAS 12 limits tax planning opportunities to actions of the entity that create or increase taxable income. Consequently, applying paragraph 29 of IAS 12 by analogy in the context of the fact pattern in the request, i.e. the entity's actions to hold the AFS debt securities until the unrealised losses reverse, to maturity, is unwarranted. In addition, the approach in paragraphs 24-31 of IAS 12 requires an entity to assess the probability of realising deferred tax assets on a combined basis that is consistent with the rules established by the taxation authorities.

Following from the previous day’s discussion of the comments and objections received, the Committee decided not to finalise the tentative agenda decision at this meeting and to explain in the IFRIC Update that although the outcome of the Committee’s deliberations has not changed, there seems to be alternative views to consider. The final decision will be published at a later date.

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