IFRS 10 – Definition of investment-related services or activities

Date recorded:

The project manager introduced Agenda Paper 10: Investment Entities Amendments – The definition of investment-related services or activities by reminding the Committee that they had received a submission to clarify the definition of ‘investment-related services or activities’. He explained to the Committee that if an investment entity provides investment-related services or activities through a subsidiary, the investment entity should consolidate that subsidiary. The submitter had asked whether wholly-owned subsidiaries in different jurisdictions which were only established to minimise the tax paid by the parent and its investors fall in the definition of providing investment-related services. He said that there was no other activity within the subsidiary and that the tax effect comes solely from funds being channelled through this subsidiary.

He said that the IFRS Interpretations Committee (IFRS IC) had received several comment letters on this tentative agenda decision. He explained that one of the respondents asked for a better explanation of the reference to Example 4 of the Illustrative Examples of IFRS 10 Consolidated Financial Statements that was made in the tentative agenda decision. The respondent stated that Example 4 did not relate to tax planning arrangements. The project manager therefore proposed to remove the reference to Example 4.

Another comment letter received mentioned that it should be made clear that the agenda decision only relates to subsidiaries that were incorporated solely for tax optimisation purposes and had no other activities. The respondent said that subsidiaries were often required to provide services such as administration of regulatory or tax filings or governance services around the acquisition and disposal of investments or were also used as financing vehicles, which were considered investment-related services. The project manager said that he therefore made an editorial change in this respect.

One Committee member agreed with the removal of the reference to example 4 but was concerned that the second change could be read as if the subsidiary had tax optimisation and something else, the assessment would be different. However, this was not the case if the subsidiary was itself an investment entity. The project manager replied that this could be addressed by the upcoming narrow-scope amendment on investment entities. The IFRS IC member replied that the agenda decision should stick to the question whether tax optimisation was an investment-related service and that the addition to the proposed agenda decision was unhelpful. Another Committee member said that he did not see the need for the addition to the proposed agenda decision as it was evident from the rest of the wording that the subsidiary had no other activity. This was supported by another IFRS IC member. Nonetheless, he raised the question whether it was appropriate to finalise an agenda decision although the IASB was discussing a narrow-scope amendment regarding investment entities. The implementation director replied that the agenda decision should be finalised regardless of the Board’s discussions and should be reviewed as soon as the amendments were proposed. The chairman asked if there were objections to finalising the agenda decision without the addition. Nobody objected.

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