IAS 12 Income Taxes — Uncertainty over income tax treatments: Analysis of matters raised in comment letters — Agenda paper 2

Date recorded:


The IFRS Interpretations Committee issued a draft Interpretation Uncertainty over Income Tax Treatments in October 2015. The purpose of this session is for the staff to present the comment letters received, their analysis and recommendations. The Interpretations Committee members will be asked to vote on the staff recommendations. The remaining topics (including effective date and due process) will be discussed at a future meeting.

Staff analysis and recommendations

The staff focused on the following matters:

  1. interaction with the revised Conceptual Framework;
  2. scope of the Interpretation;
  3. consensus;
  4. transition;
  5. first-time adopters; and
  6. business combinations.

The staff indicates that there was general support for the Interpretation and accordingly, there are no significant changes proposes to the final Interpretation. Respondents agreed that the Interpretation would clarify how to apply the requirements in IAS 12 when income tax treatments are uncertain.

To address the concerns received in the comment letters, the staff proposes the following changes to the Interpretation:

  1. (a) Interest and penalties: The staff indicates that respondents raised concerns as to the lack of clarify of whether interest and penalties are part of the scope of the Interpretation. The staff noted that IAS 12 does not address interest and penalties and the Interpretation should follow the same path. The staff suggest adding a reference in the Basis for Conclusion to clarify this fact.
  2. Results of examination by a taxation authority: The staff noted that there were concerns in relation to the interpretation of implicit vs explicit acceptance. For example it is difficult for entities to obtain objective evidence to determine whether an implicit acceptance is the result of a specific view or just a failure to detect the issue. The staff proposes restructuring the application guidance on the results of an examination by a taxation authority to focus on changes in facts and circumstances and remove the discussion of implicit acceptance of a tax treatment by the taxation authority;
  3. Consideration of changes in facts and circumstances: The staff indicates that there were concerns in relation to the interaction with IAS 10, the meaning of period of change, and whether the changes should be considered changes in estimates per IAS 8. The staff proposes introducing references to IAS 8 (to reflect that changes in facts and circumstances are changes in estimates) and IAS 10 (to reflect that an entity is required to apply IAS 10 to determine whether the chance is and adjusting or non-adjusting event;
  4. Transition: The staff will remove the requirement to disclose the transition method applied because the requirement is already in IAS 8 ; and
  5. Transition for first-time adopters: The staff proposes providing short-term transition relief for first-time adopters to be able to apply the cumulative catch-up approach that is made available to existing users.

The following concerns were analysed by the staff and the staff concluded that there are no reasons to make changes to the interpretation:

  1. Interaction with Conceptual Framework: The staff noted that one respondent asked to clarify the implications of the revised recognition criteria proposed in the Conceptual Framework. The staff indicates that the revised Conceptual Framework will not prompt any automatic change to any existing Standard. The staff does not believe that the recognition criteria in the revised Conceptual Framework should be revised.
  2. Right to re-examine: The staff noted that respondents requested clarification on: (i) the period to be considered for the possibility of re-examination; and (ii) whether entities can consider the probability that the tax authority will re-examine instead of assuming that it will happen. The staff considers that the assumption that a taxation authority will re-examine does not imply that there is a need to recognise an income tax uncertainty. The staff also does not recommend adding passage of time to consider when there is no statute of limitation because that fact would add more complexity.
  3. Business Combinations: The staff noted that some respondents requested clarification on whether the Interpretation will also be applicable to uncertainties on income taxes that are part of a business combination. The staff considers that IFRS 3 does not address income taxes (it only address deferred taxes) and it is beyond the scope of the Interpretation to address such a matter.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.