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IAS 12 — Recognition of deferred taxes for the effect of exchange rate changes

Date recorded:

Recognition of deferred taxes for the effect of exchange rate changes

The IFRS Interpretations Committee received a submission regarding the recognition of deferred taxes when the tax base of an entity’s non-monetary assets and liabilities is determined in a currency that is different from its functional currency.  The submitter asked whether it was appropriate to recognise deferred taxes, arising due to the effect of exchange rate changes on the tax base of a non-current asset, through profit or loss.  Based on analysis performed, the IASB staff believed that paragraph 41 of IAS 12 provided sufficient guidance, and that the Interpretations Committee should not take the issue onto its agenda.  The session was devoted to discussing any comments the Committee members had on the staff’s analysis, recommendation and proposed wording for the tentative agenda decision.

The Committee members all agreed with the staff recommendation that the issue should not be taken onto the Interpretations Committee’s agenda.  The Committee members agreed that the guidance in paragraph 41 of IAS 12 was clear, and it was noted that the submitter did not necessarily disagree with this, but rather, did not like the answer the guidance gave.

There were some wording suggestions, with several Committee members suggesting that the last sentence in the second paragraph should be deleted as it was redundant.  Another Committee member suggested deleting the last two sentences of said paragraph, noting that paragraph 41 answered the question that was asked and the agenda decision did not need to go into discussion on paragraphs 58 and 61A of IAS 12.

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