IAS 12 – Recognition of deferred tax assets for unrealised losses

Date recorded:

The project manager introduced the paper. The issues, as discussed in the November 2013 and January 2014 meetings, were:

(a) whether IAS 12 Income Taxes requires that a deferred tax asset is recognised regardless of an entity’s expectations of future tax losses when there are suitable reversing taxable temporary differences (‘Issue 1’); and (b) how the guidance in IAS 12 is applied when tax laws limit the extent to which losses can be recovered against future profits (‘Issue 2’).

The IC had decided not to add this issue to the agenda.

The agenda paper included responses from comments letters received and the proposed wording for the agenda decision (including changes based on comments letters received).

The staff considered that the tentative decision on Issue 2 is not inconsistent with the tentative decision on Issue 1, because: (a) the decision on Issue 1 (the general issue) concludes that the reversal of taxable temporary differences enables the utilisation of unused tax losses and is sufficient to justify the recognition of deferred tax assets. It says that future tax losses are not considered, but does not say that tax laws limitations should not be considered. The decision on Issue 2 says that when tax laws limit the extent to which unused tax losses can be recovered against future taxable profits in each year, the amount of deferred tax assets recognised from unused tax losses as a result of suitable taxable temporary differences is restricted as specified by the tax law (eg 60% of the taxable profit of the year). This is because when the suitable taxable temporary differences reverse, the amount of tax losses that can be utilised by that reversal is reduced as specified by the tax law. This limitation is the difference between the two issues and it is the basis for the Interpretations Committee’s decision.


One IC member raised a concern (based on the comment letter received from the German Accounting Standard setter) because there was inconsistency on the response for issues 1 and 2. 

In relation to the issue 2,  “the amount of tax losses brought forward that can be recovered in each tax year is limited to a specified percentage of the taxable profits of that year”, he questioned whether this carryforward was limited to a certain period or not.

He commented that if an entity had a DTA it had to look at its DTL to see whether it was sufficient irrespective of future losses and it would account for a DTA, regardless of expected future losses.   On issue 2, if tax law limited to 60% each year – DTA would be recorded to the limit of 60% ; although in both cases the entity was loss making.

The chairman acknowledged that this issue had not been analysed in that particular way.  In relation to this concern, another IC member indicated that the agenda decision would be more complicated if more words were added. There was no further discussion on this topic and no changes to the agenda decision were decided.

Another IC member asked whether the sentence “Consequently, future tax losses are not considered” would only be added in the agenda decision for issue 1 but not for issue 2. The Chairman asked if there were any objections to add the sentence and there were no objections.

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