IAS 12 — Deferred tax – tax base of assets and liabilities

Date recorded:

IAS 12 Income Taxes: Deferred Tax—Tax base of assets and liabilities (Agenda Paper 5)


In March 2018 the Committee discussed a submission about the recognition of deferred tax when a lessee recognises an asset and liability at the commencement date of a lease applying IFRS 16 Leases and whether the initial recognition exemption in IAS 12:15 and IAS 12:24 would apply to those temporary differences.

The staff have conducted further research in exploring the standard-setting options. The staff analysis in the paper considers the requirements on the recognition of deferred tax in IAS 12, and how applying those requirements gives rise to the question the Committee aims to address.

The Committee concluded that resolving the matter would require standard-setting; and the staff have identified the following two standard-setting options:

  • (a) Option 1: Narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to both deductible and taxable temporary differences to the extent that an entity recognises a deferred tax asset and liability of the same amount in respect of those temporary differences. This could be achieved by proposing a narrow-scope amendment to IAS 12.
  • (b) Option 2: Interpret the requirements in IAS 12 in a way that is consistent with the logic presented in the previous staff paper. This could be achieved by developing an Interpretation of IAS 12.

The staff recommend Option 1 as this would be the most effective way to resolve the issue identified while Option 2 would add limited incremental benefit.


Some Committee members raised questions about the initial recognition exemption. The staff clarified that the objective of removing the initial recognition exemption for lease transactions is to produce more useful information to the users of the financial statements. This is because there is no net impact to profit of loss due to the recognition of equal amounts of deferred tax liabilities and deferred tax assets at initial recognition.

During the discussion, most of the Committee members agreed with the staff recommendation for a narrow-scope amendment to IAS 12. One of the Committee members considered that it can create better accounting in terms of the effective tax rate to reflect more the economics of the tax effects of the lease arrangements. They also pointed out that US GAAP does not have an exemption for the initial recognition of an asset or a liability in a transaction that is not a business combination and that at the time of the transaction affects neither accounting profit nor taxable profit. Another Committee member commented that the staff paper reflected the previous discussion of the Committee. The Committee member also supported the staff recommendation because the existing IFRS Standards contain no guidance on how to allocate the tax deductions and there is diversity in practice. The narrow scope amendments to IAS 12 can effectively eliminate such diversity.

The Chair expressed concerns on the appropriate timeline for preparers of financial statements since the mandatory effective date of IFRS 16 is approaching.


The Committee decided, by a majority vote, to develop an Exposure Draft proposing amendments to IAS 12.


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