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IAS 12 – Clarification of circumstances in which presumption of manner of recovery of investment property can be rebutted (review of tentative agenda decision)

Date recorded:

Paragraph 51C of IAS 12 Income Taxes (which was added in December 2010 as an amendment to IAS 12) contains a presumption that the carrying amount of an investment property will be recovered through sale. The Committee received a request to clarify whether that presumption can be rebutted in cases other than the case described in paragraph 51C.

As part of its September 2011 meeting, the Committee tentatively decided that paragraph 51C did not provide an exhaustive list of cases in which the presumption could be overcome. Similarly, if the presumption is rebutted, the resulting deferred tax was seen to reflect recovery of the carrying amount entirely through use, rather than being based on any dual purpose analysis. Based on the clarity of the guidance, and the lack of perceived expected diversity, the Committee tentatively decided not to add this issue to its agenda.

The Committee received 8 comment letters with respect to the tentative agenda decision. While the majority of comment letters supported or did not object to the decision by the Committee not to take this issue to its agenda, concerns were expressed by many respondents as to the need to clarify IAS 12 (through annual improvement) regarding whether paragraph 51C can be rebutted in other circumstances beyond that which is described in the guidance and whether the resulting deferred tax should reflect recovery of the carrying amount entirely through use, if the presumption is rebutted.

In discussing the rebuttal presumption, and considering IASB discussions at the time of amending IAS 12 for paragraph 51C, Committee members expressed a continued belief that paragraph 51C did not provide an exhaustive list. Similarly, Committee members noted that this general view was not contradicted in comment letters received in response to the September tentative decision.

Thus, the Committee noted that a presumption is a matter of policy in applying a principle (or an exception) in IFRSs in the absence of acceptable reasons to the contrary and that it can be rebutted when there is sufficient evidence to overcome the presumption. Because paragraph 51C is expressed as a rebuttable presumption and because the sentence explaining the rebuttal of the presumption does not express the rebuttal as 'if and only if', the Committee noted that the presumption in paragraph 51C of IAS 12 can be rebutted in other circumstances as well, provided that sufficient evidence was available to support that rebuttal.

One Committee members expressed a desire to limit any agenda issue to the specific issue raise to the Committee (above, in clarifying whether the presumption can be rebutted in cases other than those described in paragraph 51C), as opposed to again considering the dual tax recovery issue. This view was shared by other Committee members. Thus, the agenda decision will not reference the dual tax recovery issue, but rather, will be limited to a decision not to add the rebuttable presumption issue to its agenda.

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