IAS 19 — Pre versus post-tax discount rate

Date recorded:

The Committee considered a request to clarify whether, in accordance with IAS 19 (2011), the discount rate used to calculate a defined benefit liability should be pre- or post-tax. The specific tax regime outlined in the submission specified that (a) the entity receives a tax deduction for contributions made to the plan; (b) the plan pays tax on contributions received and on investment income earned; but (c) the plan does not receive a tax deduction for benefits paid.

Committee members expressed unanimous support that the discount rate should be pre-tax. Committee members noted that IAS 19 (2011) is clear that taxes relating to contributions and benefits should be taken into account in determining the ultimate cost of providing benefits (in accordance with IAS 19.76(b)(iv)). They also noted that in accordance with paragraph 130 of IAS 19 (2011), the return on plan assets includes any tax payable by the plan itself other than tax included in the measurement of the present value of the defined benefit obligation. Therefore, they believed that IAS 19 (2011) was clear that the discount rate used to calculate a defined benefit liability should be pre-tax.

The above tentative decision was inconsistent with that proposed by the staff (as the staff believed a post-tax discount rate may be used, provided that it is consistent with the cash flows, given a view that IAS 19 (2011) did not specify whether the discount rate should be a pre- or post-tax rate). Therefore, the staff noted they would redraft the tentative agenda decision based on Committee tentative conclusions and recirculate that wording.

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