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IAS 12 – Threshold of recognition of an asset on uncertain tax position

Date recorded:

The project manager introduced the paper which explained that the IC received a request for guidance on the recognition of a tax asset in the situation in which tax laws required an entity to make an immediate payment when a tax examination results in an additional charge, even if the entity intended to appeal against the charge. In the situation described by the submitter, the entity expected, but was not certain, to recover some or all of that cash. The IC was asked to clarify whether IAS 12 Income Taxes (and a ‘probable’ threshold) would be applied to determine whether to recognise an asset, or whether the guidance in IAS 37 Provisions, Contingent Liabilities and Contingent Assets (and a ‘virtually certain’ threshold) should be applied.

The IC discussed this issue in the January 2014 meeting and tentatively decided not to add this issue to its agenda, because it observed that: (a) IAS 12 provided sufficient guidance on the recognition of current tax assets and current tax liabilities and (b) in the specific fact pattern described by the submitter, an asset should be recognised if the amount of cash paid (which is a certain amount) exceeded the amount of tax expected to be due (which is an uncertain amount).

The objective of this meeting was to analyse the comment letters received and the proposed wording for the final agenda decision.


One IC member agreed that the issue was too broad to be addressed by the IC but he still believed that they could be helpful in providing some clarifications. Uncertain tax positions were income taxes, this was explicit in IAS 12 and also IAS 37 was explicit that income taxes were out of scope. The recognition issue could be clarified while the measurement issue will have to remain open for future discussions. Several IC members agreed with this assessment.

One IC member also clarified that even if an entity made a payment it should not affect the measurement of the income tax to be charged in P&L because that should be assessed based on IAS 12 . Several IC members expressed agreement.

Another IC member also indicated that diversity had to be acknowledged and that this was also a jurisdictional issue.

One IC member suggested adding this issue to the Annual Improvement Cycle, which was rejected by other IC members. The Implementation Director indicated that given the diversity in practice of this issue, the fact that ten comment letters were received and the importance of this topic, it deserved to be addressed separately. The chairman agreed with this comment.

The chairman summarised the discussion and suggested that they could issue a short interpretation to addresses the recognition issue (stating that an income tax pre-payment would be outside of scope of IAS 37 and an entity should look at IAS 12), but they would not add any comment regarding measurement because there is currently no guidance in IAS 12. The proposal was accepted by the majority of the IC members.

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