IFRIC 21 — Levy on PPE of service provider

Date recorded:

The project manager introduced Agenda Paper 9 (link to IASB's website) which refers to submissions received relating to levies raised on production property, plant and equipment (PPE). The submitters request clarification on how to account for the costs arising from this type of levy. The levy arises from the existence of PPE at a certain date.

Neither IFRIC 21 nor IAS 37 provides guidance on whether the costs arising from recognising a levy, or a liability, give rise to an asset or an expense. The staff conducted outreach activities which are summarised in the agenda paper. The staff did not identify an underlying principle that could be applied to the recognition of the debit side of the entry. It also noted that IAS 37 did not specify whether expenditures are treated as assets or as expenses. The staff believes that the accounting method applied would depend on a detailed analysis of the relevant facts and circumstances and a comparison of that analysis with the detailed guidance in other Standards. They also propose to include a paragraph in the agenda decision to state that service providers could have inventory despite not having physical inventory.

The staff concluded that this topic should not be added to the IC agenda primarily because they were not able to identify a general principle to address the accounting for the debit side. Another reason expressed by the staff was that it was not their practice to give case-by-case advice on individual fact patterns.


There was general agreement with the staff recommendation not to add the issue to the agenda. Members also agreed that IFRIC 21 was silent on the debit side and an entity needed to look at other standards to determine the appropriate accounting for the debit side. However, there were some concerns raised by some Interpretation Committee members.

There was general disagreement with the staff statement that this was a very specific fact pattern. Several members said that the issue was broader (even before the implementation of IFRIC 21, for example for the treatment of property taxes or maintenance); they also believed that the interaction between IFRIC 21 and IAS 2 was widespread and there was a need for some guidance. One member stated that the definition of inventories in IAS 2 did not consider something like levies. Another example raised by another member was bank levies which were widespread.

Some members expressed concern about the sentence related to service providers included in the agenda decision; one member disagreed with the statement that a service provider could recognise inventory just for levies even though the service provider did not have physical inventory. The project manager responded that the sentence was added in order to respond to the issue addressed by the submitter, the staff noted from the outreach activities that there was resistance (particularly among the auditing profession) to capitalise cost in inventories without having physical inventories. Some members responded that they needed to discuss the issue before being able to conclude whether this is appropriate.

One member indicated that IFRIC 21 changed practice because now a levy had to be accrued at a point in time regardless of whether there was inventory. Before IFRIC 21, a levy would have been accrued over time. There was agreement from other members with the assessment that IFRIC 21 changed practice.

One IASB Board Member expressed that a levy was not a tax or income tax, a levy could be compared  for example to an insurance policy that was paid on day 1 and would be a prepaid expense.  In order for it to be capitalised as costs or work in progress, there had to be a contract with a customer as now required by IFRS 15. On the other hand, for a levy to be considered an asset, an entity would have to demonstrate that it could obtain benefits, if there were no benefits it should be expensed.  

There was no agreement with the IASB Board member statement that a levy could be similar to insurance. One member raised the point that a levy may be triggered at a certain point of time but had not been paid yet, so it would be impossible to be considered a prepaid asset. Another argument raised by another member was that an entity obtained direct benefits from having insurance while it may not get any direct benefit from a levy. They found it difficult to identify a general principle to address the topic.


The Chairman summarised the comments raised by calling on a vote on the following:

  1. To delete last paragraph of the agenda decision related to service providers — The proposal was agreed and no objections were raised.
  2. To approve the agenda decision — Agreed and no objections raised
  3. Whether the staff should prepare another paper in the context of IAS 2/IAS 16 to analyse the issue — The proposal was rejected.
  4. Whether the staff should write a note to the conceptual framework team to raise this issue and ask whether the debit side meets the definition of an asset as an example — The proposal was accepted.

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