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New Interpretation on accounting for levies

  • IASB (International Accounting Standards Board) Image

May 20, 2013

The International Accounting Standards Board (IASB) has released IFRIC 21 'Levies'. IFRIC 21 provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' and those where the timing and amount of the levy is certain.


The genesis of the Interpretation is a request to the IFRS Interpretations Committee to determine whether, under certain circumstances, IFRIC 6, Liabilities Arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, should be applied to other levies charged for participation in a market on a specified date to identify the event that gives rise to a liability.

The specific examples provided to the Committee included the United Kingdom bank levy, fees paid to the Federal Government by pharmaceutical manufacturers in the United States, a bank levy in Hungary, and the railway tax in France. The final Interpretation covers a broad range of levies, rather than a focus on levies charged to participate in a market.

The key issues considered by the Committe in developing the Interpretation included when a liability should be recognized and the definition of a present obligation in IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

The Committee published a draft Interpretation in May 2012 and concluded redeliberations in the first quarter of 2013. The IASB ratified the Interpretation at its April 2013 meeting.

Requirements of the Interpretation

IFRIC 21 identifies the obligating event for the recognition of a liability because the activity that triggers the payment of the levy is in accordance with the relevant legislation. The Interpretation clarifies that "economic compulsion" and the going concern principle do not create or imply that an obligating event has occurred.

IFRIC 21 provides the following guidance on recognition of a liability to pay levies:

  • The liability is recognized progressively if the obligating event occurs over a period of time.
  • If an obligation is triggered on reaching a minimum threshold, the liability is recognized when that minimum threshold is reached.

The same recognition principles are applied in interim financial reports.

The Interpretation provides numerous examples to provide guidance on its application. For example, the Interpretation provides the example of a levy that is triggered by operating as a bank at the end of the reporting period. In applying the requirements of the Interpretation, the obligating event is considered to be operating as a bank on the last day of the reporting period and so the liability for the levy is not recognized before that date. Furthermore, the levy would only be recognized in any interim report that covers the period including the last day of the annual reporting period.

A full summary and history of the Interpretation can be found on our summary page for IFRIC 21.

Changes made in finalizing the Interpretation

The IFRS Interpretations Committee made a number of changes from the original proposals in Draft Interpretation DI/2012/1, Levies Charged by Public Authorities on Entities that Operate in a Specific Market, as a result of its redeliberations, including:

  • Broadening the scope to include all levies, rather than a focus on levies charged to participate in a market.
  • New guidance on how to account for levies that have a minimum threshold.
  • Removing guidance on determining whether a liability to pay a levy gives rise to an asset or expense.
  • Excluding emissions trading schemes from the scope of the Interpretation (as this topic is subject to an IASB project).

Interaction with other pronouncements and effective date

The Interpretation does not supersede IFRIC 6, Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, which remains in force and is consistent with IFRIC 21. The IFRS Interpretations Committee believes IFRIC 6 provides useful information on accounting for liabilities within its scope.

IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. Initial application is in accordance with the requirements of IAS 8, Accounting Policies, Changes in Estimates and Errors, i.e., the requirements are applied on a retrospective basis.

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