The Board discussed how to account for the tax effects of acquisitions of assets that are not accounted for as a business combination where the amount paid is different from the tax base of the asset acquired.

The staff noted that this issue is currently dealt with under the 'initial recognition exemption' and that the Board had previously tentatively agreed to eliminate this exemption.

The Board discussed three different views:

View A: Recognise the deferred tax asset or liability as the difference between the consideration paid and the tax base multiplied by the tax rate; the resulting deferred tax benefit or expense is recognised immediately in profit or loss;

View B: Allocate the consideration paid between the asset and the related deferred tax asset or liability using the simultaneous equations method; and

View C: Allocate the consideration paid between the asset and the related deferred tax asset or liability using the simultaneous equations method; however, any tax benefit in excess of the cost of the related asset is recognised immediately in profit or loss.

The staff recommended View C but noted that even if the IASB and FASB agreed to adopt View C, due to differences in other areas of accounting (primarily differences in the impairment models), full convergence will not be achieved.

The Board supported the staff's recommendations but acknowledged that it was not a perfect solution in all scenarios.

The Board discussed how this would impact assets that have no tax deduction if the asset is used but has a deduction of cost if the asset is sold. Certain Board members stated that the intention, in drafting IAS 12, was that the tax base was the amount deductible on sale but that this was not clear. The staff stated that they were intending to propose changing the definition of tax base to adopt this view.