IAS 12 — Multiple tax consequences of recovering an asset

Date recorded:


In its November 2019 meeting, the Committee discussed a submission asking how an entity accounts for deferred taxes when the recovery of the carrying amount of an asset gives rise to multiple tax consequences. In the fact pattern described, the entity acquires a licence (intangible asset) as part of a business combination. The entity expects to recover the carrying amount of the licence only through use, and the expected residual value of the licence at expiry is nil. The applicable tax law prescribes two different tax regimes: income tax regime (pay income tax on the asset's economic benefits but receive no tax deductions in respect of amortisation of the licence) and capital gain tax regime (receive a tax deduction when the licence expires). The tax law prohibits the entity from using the capital gain tax to offset the taxable economic benefits from use in determining taxable profit. The submitter asks, in accounting for the deferred tax arising on initial recognition of the licence, should the entity identify a single tax base or account for the tax consequences under each regime separately. In the meeting, the staff concluded that the entity should account for the tax consequences under each regime separately and did not recommend to add the matter to the Committee's standard-setting agenda but to publish an agenda decision. Most of the Committee members agreed with that conclusion.

Of the nine responses received to the tentative Agenda Decision, eight agreed with not adding the matter to the Committee's standard-setting agenda and to publish an agenda decision.  One respondent, KPMG, disagreed with the Committee's analysis and conclusion.

Staff analysis

KPMG considered that the staff did not analyse the underlying question of whether a single asset or liability can have multiple tax bases but the Agenda Decision implied that it could be the case. They considered that an asset or liability can only have one tax base on the grounds that all references to "tax base" in IAS 12 are singular rather than plural and an agenda decision published in March 2015 implied this. A single temporary difference is split into components if there are multiple ways of recovering the investment. Therefore, KPMG was of the opinion that finalising the agenda decision which implied multiple tax bases would be standard-setting. It also commented that the tax base of the asset is immediately apparent because the entity always receives a tax deduction of the initial cost.

The staff disagrees with KPMG's view that the agenda decision implied an asset or a liability can have more than one tax base. In the agenda decision, it states that an entity compares the portion of the asset's carrying amount that will be recovered under one regime with the tax deduction that will be received under the same tax regime. The staff considers this description as consistent with IAS 12:BC9 which requires an entity to split the carrying amount of the investment property measured using the cost model to reflect the tax consequences arising from different manners of recovery of the asset. Moreover, the staff continued to support the conclusion that the tax base of the asset is not immediately apparent because different views are identified about how an entity determines the tax base of the asset.

The staff further pointed out that regardless of whether the asset is considered to have a single tax base or a different tax base under each tax regime, this will not affect the outcome. In both cases, the resulting deferred tax would reflect two distinct tax consequences that will follow from recovering the asset's carrying amount through use.

Two respondents suggested wording changes to the agenda decision. Firstly, the agenda decision could emphasise that the tax law prohibits the offsetting of the deductions from one tax regime with the taxable profits from the other tax regime. However, the staff thinks that this emphasis already exists in the agenda decision. Secondly, the agenda decision could specify that the entity recovers the carrying amount of the asset by way of two manners of recovery and allocates the carrying amount of the license to each tax regime applying IAS 12:51 & 51A. These amounts are then compared with the tax base under the income tax regime and capital tax regime respectively. The staff does not agree adding this because in the fact pattern described, there is only one manner of recovery, i.e. through use. Instead, the recovery of the asset's carrying amount through use gives rise to two distinct tax consequences.

Some respondents commented that finalising the agenda decision could have far reaching consequences. Entities may apply the agenda decision to any asset or liability for which the carrying amount can be recovered or settled in more than one way; or with more than one tax consequences that cannot be offset. The respondents also considered that it is unclear that if the proposed amendments to IAS 12 in the Exposure Draft Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction would apply to scenarios where the initial recognition of a single asset or liability gives rise to the initial recognition exemption in IAS 12:15 & 24 and suggested that this be addressed. Nonetheless, the staff expect that only entities with the same fact pattern will apply the tax consequences in the manner set out in the agenda decision, but other entities with other fact patterns would not necessarily do so. Also, the staff noted that the recognition exemption is not within the scope of this agenda decision and suggested the Board should consider it in future meetings after feedback is received on the Exposure Draft instead.

Staff recommendation

The staff recommended finalising the agenda decision as published in IFRIC Update in November 2019 with no changes.


All of the Committee members agreed with the conclusion in the agenda decision but there was a lively discussion about whether changes to the drafting should be made. Some Committee members were of the view that IAS 12:10 should not be quoted because the tax base is immediately apparent. Therefore, these members suggested that sentences related to IAS 12:10 and stating that the tax base is not immediately apparent be removed from the agenda decision. However, others considered quoting the paragraph helped to explain the complete thought process or, at least, would not be misleading.

Moreover, one Committee member expected entities to go through the whole process of assessment for the temporary difference according to IAS 12, including recognition and measurement. Therefore, the term “account for” was too unspecific. The staff agreed with this.

The Committee voted in three stages:

  • In the first vote, the Committee rejected by a vote of 7:7 the adoption of the original agenda decision.
  • In the second vote, the Committee decided by a vote of 11:3, to adopt the agenda decision with the modification to remove the quote of IAS 12:10 and the statement that the tax base is not immediately apparent.
  • In the third vote, the Committee decided by a vote of 10:4, that the agenda decision should also refer to “recognition and measurement” instead of “account for”.

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