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IAS 1 and IAS 12 — Presentation of payments of non-income taxes

Date recorded:

The Committee received a request for clarification on the presentation in the statement of other comprehensive income for production-based royalty payments paid to one tax authority that are claimed as an allowance against income tax paid to another tax authority as either operating or a tax expense. This submission results from a proposed tax legislation (the Minerals Resource Rent tax or ‘MRRT´) in Australia that is scheduled to become effective 1 July 2012. Under this legislation, payments to another local tax authority for production-based royalties would be deductible in calculating the MRRT payment due.

The Committee considered whether the royalty tax payments paid to other tax authorities should be classified as operating or tax expenses. The staff analysis supported classification as an operating expense. In the staff view, the line item of tax expense in IAS 1 Presentation of Financial Statements does not include taxes that are outside the scope of IAS 12 Income Taxes. Paragraph 5 of IAS 12 states that:

"tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:..."

The staff recommends the Committee not add this item to its agenda as through their outreach they have not identified significant divergence in practice as non-income taxes are presented as operating expenses or production costs in those jurisdictions. The Committee broadly agreed with the staff recommendation but had certain concerns with the draft tentative agenda rejection notice.

In discussing the proposed rejection notice, the Committee Chair questioned whether the notice should include the statement "the Committee noted that it did not expect diversity in practice on the presentation of non-income tax payments to emerge." One Committee member mentioned that this was a topic that should be discussed across all issues rather than discussing only for this agenda decision.

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