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IAS 12 — Measurement of current tax assets and liabilities when a tax position is uncertain

Date recorded:

The Technical Manager introduced the agenda paper that addressed accounting for liabilities arising from uncertain tax positions. The agenda paper focused on the scope, the unit of account and an approach for a measurement method. Setting the scope for specific situations would be an arbitrary bright line in the staff’s view. Moreover, this would be unnecessary if a recognition threshold was applied. Therefore, all uncertain tax positions should be in the scope of the project but they should only be recognised if it was probable that the entity would pay some amount to a tax authority. This would be consistent with IAS 12 and the Conceptual Framework. As regards unit of account an entity should apply judgement. If a decision on a specific position was likely to affect, or be affected by, other positions, all those positions should be treated as one unit of account. As regards a measurement approach, an entity should apply judgement between the expected value and the most likely amount on the basis of which method it expected to better predict future cash flows for each case. This would be similar to the approach in IFRS 15 Revenue from Contracts with Customers. The staff noted that no standard referred to a ‘more likely than not’ amount.

Staff recommended developing an interpretation on uncertain tax positions on the basis of the analysis provided in the agenda paper.

One Committee member welcomed the direction of the project but said he proposed deleting the reference to the probability threshold. He said that current tax should be recognised under IAS 12 and that it was unnecessary in his view to explicitly mention the probability threshold for the uncertain part of current tax. He agreed with the proposed judgement on unit of account.

A Committee member also agreed with the staff recommendation and would like for the draft interpretation to explain which accounting methodology was applied and why. He said that guidance would also be needed on uncertain tax positions that were not income taxes but he was uncertain as to whether this could be included in the project.

Another Committee member pointed out that the unit of account depended on the tax regime under which the entity was taxed and that the Committee should be careful issuing guidance around that topic. Whilst agreeing with the measurement approach he warned that this could mean a default position of the Interpretations Committee for other issues as well.

One Committee member disagreed with the recommendation of issuing an interpretation with regard to measurement. To him the measurement guidance in IAS 12 was clear and therefore introducing the proposed measurement approach would require an amendment to IAS 12. He warned that IFRS 15 should not be used as a Conceptual Framework.

A fellow Committee member agreed with the staff looking to IFRS 15 for measurement. However, she would prefer not going into much detail on the measurement bases. She reminded the Committee that the original question was on whether a cash amount paid to the tax authorities was an asset. In her view, the amount was similar to a deposit to the tax authorities and the issue was whether this deposit could offset the liability for an uncertain tax position. The deposit was fully recoverable. She would like for this (deposit) issue to be distinguished from the issue discussed in the agenda paper.

A Committee member said that the scope should be clear as to whether also uncertainties in deferred taxes (for example an uncertain tax basis) were included.

For one Committee member the guidance was clear. He said that the issue was scoped out of IAS 37 and therefore only IAS 12 could be applied. IAS 12, he said, had a ‘probable’ recognition threshold and clear guidance on measurement. Therefore, he was uncertain as to whether there were any differences in practice and whether a big project was needed at all.

Another Committee member disagreed and said that the measurement principle in IAS 12 needed interpretation in his view.

One Committee member said that the US GAAP guidance should not be ignored when drafting an interpretation and disagreed with the reference in the agenda paper that the proposed accounting treatment would be more costly. She said that the introduction of guidance on that topic to US GAAP had not increased costs in her view. As regards measurement she proposed to let preparers elect the measurement technique on a position by position basis as each position was different in her view.

The Chairman disagreed with the comment made earlier by one Committee member that the measurement guidance would have to be amended to introduce the proposed approach. He believed it was a better articulation of what was already written and therefore an interpretation. Several observing IASB members expressed disagreement with that.

One Committee member said that he would like to include guidance from IFRS 15 about the expected value in the interpretation.

Another Committee member suggested providing illustrative examples on how to apply judgement on the unit of account issue.

The Chairman suggested approaching the FASB to gain some insights into how the FASB had arrived at its guidance. Otherwise he concluded that the Committee wanted to pursue the interpretation and suggested that staff commenced drafting. The Committee supported that.

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