The exposure draft addresses the uncertainty in practice about how an entity applies the initial recognition exemption in paragraphs 15 and 24 of IAS 12 Income Taxes to transactions that give rise to both an asset and liability on initial recognition and may result in temporary differences of the same amount.

EFRAG is supportive of the International Accounting Standards Board (IASB)'s aim to reduce diversity in practice in this area. However, it considers that the proposal to add an exception to an existing exemption may introduce added complexity.  EFRAG has concerns with the recognition 'cap' in paragraph 22A(b) for a deferred tax liability, and the consequences of this proposal in subsequent periods.

It also considers that the scope of the ED is broader than leases and decommissioning obligations but that the ED does not address the consequences of this potential wider scope.  EFRAG proposes that the IASB could just limit the scope to lease transactions.  Given the complexity of the proposals EFRAG has also considered whether the gross approach is the better solution rather than the net approach.

A press release and the final comment letter are available on the EFRAG website.