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IFRIC 21 - Levies that are subject to a pro-rata threshold as well as an annual threshold

Date recorded:

The Committee received a request to clarify whether an obligating event for a levy that is subject to a minimum annual threshold can occur before that threshold is reached. There are two different circumstances as examples in which the legislation requires an entity to pay levies that are subject to minimum annual thresholds as well as ‘pro-rata’ thresholds, where the entity starts or stops the relevant activities that give rise to the levies in the middle of the annual assessment period. There is a concern as to how ‘the activity that triggers the payment of the levy’ in paragraph 8 of IFRIC 21 should be interpreted in identifying the obligating event. The three different views on an activity that triggers the payment of the levies in such circumstances are;

  • the activity is passing the annual threshold,
  • the activity is passing the ‘pro-rata’ threshold, and
  • the activity is provision of relevant services (i.e. prior to passing the annual and ‘pro-rata’ threshold’).

Staff presented the summary of their results concluded as follows:

  • the activity that triggers the payment of the levy that is described in paragraph 25 is the reaching of the ‘pro-rata’ activity threshold. This is because the entity’s future actions should not be taken into consideration when identifying an obligating event under IAS 37;
  • the results of the outreach do not indicate that there is significant diversity in practice on the accounting for such a levy under IAS 37. IFRIC 21 does not change the requirements of IAS 37, but instead aims to ensure consistency of interpretation. Therefore, it is unlikely that significant diversity in practice will develop; and
  • consequently, the Committee should not add this issue to its agenda.

Staff presented their proposed wording for a tentative agenda decision.

A member said the analysis presented by Staff was confusing and the paper needs to address the issue of what to do when an entity ceases operation and the interaction with levies being pro-rata thresholds.

Another member agreed with Staff that the Committee should not take this onto its agenda but similarly to the previous member was not convinced by Staff’s analysis, in particular because the distinction between a pro-rata threshold and a progressive threshold was not made.

A member added that IFRIC 21 may have significant implication to current practice. This member was also confused with Staff analysis in particular view 2A presented where Staff said “an entity that has passed the ‘pro-rata’ threshold and assesses that it is probable that the annual threshold will be reached should begin accruing a liability once the entity exceeds the ‘pro-rata’ threshold.”

Another member added that the only exception to the rule for booking an expense (or a liability) is when it is written into Legislation. In addition payroll taxes are not intended to be captured by IFRIC 21.

A member said where there are multiple triggering events, an entity should recognise the expense (or a liability) when it has satisfied all of these.

Another member added that Staff’s paper was confusing cashflows with the booking of expenses and gave the example of withholding taxes.

Another member added that further guidance, in particular to discuss changes in threshold on disposal of an asset or ceasing to trading. The triggering event on disposal of an asset is when it’s sold rather than the intention of selling it.

The Chairman concluded that Staff are to re-write the agenda decision. In agreement with the majority of the members additional examples are not to be included however Staff are to assess the impact of a variety of issues (Staff said they are collecting an inventory of issues that they can look at).

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