IAS 12 — Impact of uncertainty when an entity recognises and measures a current tax liability or asset and principles of the draft Interpretation

Date recorded:

The Visiting Fellow reminded the Committee that at the previous meeting the Committee had decided on points that required guidance. Firstly, all income tax positions should be included within the scope of the Interpretation. Secondly, the new guidance should explain that an entity recognised a current tax liability or asset only if it was probable that it would pay the amount to, or recover the amount from, a tax authority. Thirdly, it should be assumed that the tax authorities had full knowledge of all information. The Visiting Fellow informed the Board that no IASB members had raised significant concerns about the tentative decisions taken by the IFRS Interpretations Committee.  Some IASB members had asked why the scope of the Interpretation was limited to current tax, and did not include deferred tax. If the Committee decided not to expand the scope of the draft Interpretation to include deferred tax, it could consider whether a specific question about this should be asked in the Exposure Draft.

One Committee member asked the staff for clarification on the recognition threshold as the measurement guidance would be sufficient to deliver the same results even if there was no recognition threshold. He also said that he agreed to assume that tax authorities had all information but he limited it to a certain extent. After a period of time, it would be clear that the tax authority would no longer detect any tax liabilities.

Another Committee member agreed with the point raised by the former member as regards to recognition threshold. He also agreed with some of the IASB members that deferred taxes were affected as well. He therefore suggested considering deferred and current tax together. Otherwise, constituents might treat current taxes and deferred taxes differently as deferred taxes were scoped out of the Interpretation. He also asked the staff as to how long a liability for a tax uncertainty would be continued to be recognised.

A fellow Committee member agreed that the interaction between the Interpretation and deferred taxes should be explained in the Interpretation. He shared the concern that the recognition and measurement guidance was unclear. He proposed that first, preparers should define the unit of account, secondly they should determine whether it was probable that tax would be recovered or paid and thirdly the tax position should be measured. He asked the staff whether they planned including disclosure requirements in the Interpretation. The Director of Implementation Activities replied that interpretations usually did not give any guidance on disclosures as they were only interpreting the Standard. The reference in IAS 12 to IAS 37 also applied to uncertain tax positions in his view. The Committee member replied that the reference was only for contingent tax liabilities and could therefore not be extended.

One Committee member expressed concern about the retrospective application as in his view, retrospective application would only work with the use of hindsight. Another Committee member agreed and added that she would like to see an explanation as to why the Interpretation would not follow the US GAAP guidance.

A Committee member said that the unit of account was a particularly difficult area in the Interpretation and therefore suggested adding more guidance. He also shared the concerns about retrospective application and said that the impracticability exemption in IAS 8 would be a high hurdle. The Chairman asked whether that hurdle should then be lowered or whether the Interpretation should be applied prospectively. The Committee member said that a lower hurdle would solve many transition problems but since the hurdle had often been interpreted as very high, he would propose prospective application with retrospective application permitted.

One Committee member asked as to how the treatment would be different for income taxes and other taxes. He said that the Interpretation should be applied to other uncertain tax positions as well. He also raised concerns about referring to IFRS 15 in the Basis for Conclusions of the Interpretation as IAS 12 had predated IFRS 15. He therefore suggested deleting the reference.

An observing IASB member said that IAS 1 gave guidance on disclosures about measurement uncertainties and suggested referring to this guidance in the Interpretation. It could be reiterated which types of disclosures might be particularly relevant for uncertain tax positions.

The Chairman said that besides the editorial comments around the unit of account, recognition and the illustrative examples, some issues required a vote. Eleven of the fourteen members voted in favour of extending the scope to deferred taxes. Eight members supported including comments on disclosures in the Interpretation.

An observing Board member warned that extending the scope to include deferred taxes also included deferred taxes on losses carried forward. He asked whether that was intentional. The Visiting Fellow said that the scope should be limited to the impact of the computation of current taxes on deferred taxes. None of the Committee members objected.

On derecognition, the Director of Implementation Activities asked the Committee member who had raised the point, as to why there would still be uncertainty if the tax examination had been completed. The Committee member said that the tax authorities could potentially come back to examine the issue. The Chairman said that this issue should be further examined, especially for jurisdictions that did not have a statute of limitations.

When called to a vote, ten Committee members voted in favour of prospective transition and eleven members did not object to allow full retrospective application.

A Committee member asked whether the catch-up under prospective application would go through P&L or through retained earnings. The Chairman asked the Committee to decide. 13 members voted in favour of retained earnings.

The Chairman asked if, all points considered, any member would object to the Interpretation. None of the members indicated to object.

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