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IAS 12 — Tax effect of distributions to equity holders

Date recorded:

The IFRIC was asked to clarify a conflict between IAS 12 Income Taxes and IAS 32 Financial Instruments: Presentation in respect of the accounting for income tax consequences of distributions to holders of equity instruments.

The inconsistency results because IAS 12 generally requires the recognition of income tax consequence of dividends in profit or loss, whereas IAS 32 requires debiting the distribution directly to equity, net of any related income tax benefits. As part of the ED on Income tax issued in March 2009, the Board proposed a change to IAS 32 to resolve the issue. However, that proposal will not be carried forward to the Board's limited scope project on IAS 12.

Although the IFRIC members agreed with the proposal to amendment IAS 32 to requirement accounting for income tax in accordance with IAS 12 through the annual improvements project, there was disagreement on the wording of the basis for conclusions accompanying the proposed amendment. Some members were concerned that the proposed wording would change the treatment of income tax related to all distributions. Another member was opposed to the proposed retrospective application of the amendment as it may be very complicated to determine.

After a short discussion on the matter, the IFRIC tentatively agreed to propose an amendment to IAS 32 and IFRIC 2 to direct preparers to IAS 12 for income tax consequences as part of the ED on Annual Improvements to be issued later during the year. IFRIC also agreed to propose retrospective application in line with normal transitional requirements, but to include a specific question on the practicability of retrospective application in the ED.

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