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Income Taxes

Date recorded:

The Board discussed the accounting for investment allowances in the context of a specific tax regime's requirements. A national standard-setter and securities regulator had approached the IFRIC staff for guidance on how to apply IAS 12 to a tax allowance in their jurisdiction. The allowance is given as an incentive to entities to encourage investment/ expenditure on qualifying projects and activities. Under the tax rules, an entity would be able to claim 60 per cent of qualifying expenditures as an additional deduction under certain conditions. If the asset acquired as a result was disposed of within two years of the date of its acquisition, the allowance would be refundable. (Further details are available in Observer Note 6, available on the IASB Website.)

The Board debated whether the tax allowance would be reflected in the asset's tax basis and concluded that, at initial recognition, it should not. The entity would have to reflect the possible obligation to return the additional deduction until such time as the deduction was non-refundable. Although the accounting effect looked like a basis adjustment, it was not. One Board member noted that the solution to the problem was to fix the definition of tax basis such that everything else that does not create a temporary difference should be reflected in the current period.

The Board agreed that a sub-group of Board members and staff should consider this point, in conjunction with the FASB staff, and report to the Board within a reasonably short time period.

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