IAS 12 — Expected manner of recovery when calculating DT on indefinite life intangible assets

Date recorded:

IAS 12 Income Taxes — Expected manner of recovery of indefinite life intangible assets when measuring deferred tax — Agenda paper 2


The Interpretations Committee received a request to clarify how to determine the expected manner of recovery of indefinite life intangible assets for the purposes of measuring deferred taxes.

The question arises when an intangible asset had an indefinite life and was not being amortised for financial reporting purposes but the applicable tax law allowed or required the asset to be amortised and, as a result, the asset’s tax base and its carrying amount differed.

The submitter identified three views: (i) use the tax rate (and tax base) applicable to ordinary taxable income unless there was a current plan to sell the asset in question; (ii) use the tax rate (and tax base) that would apply if the asset were sold; or (iii) select the appropriate tax rate as an accounting policy choice.

The issue was discussed in May 2016 (see agenda paper 10 for further detail).

The staff concluded that IAS 12 provided the general principle to identify the appropriate tax rate, which was to consider the expected manner of recovery.  IAS 12 had two paragraphs (51B and 51C) that related to assets measured under the revaluation model in IAS 16 and investment property, which required an entity to apply the tax rate if the asset was sold.

The staff analysis was that intangible assets were not non-depreciable assets and having an indefinite life did not mean having unlimited life. Accordingly, the general principle in IAS 12 applied, rather than the specific requirements in IAS 12.51B-C.

At the May meeting the staff was asked to clarify how to determine the expected manner of recovery in this situation and explore the interaction between how an asset is amortised and the general requirements of IAS 12.  The purpose of this session was to discuss the staff analysis and the staff recommendation.

Staff analysis

The staff believed that the non-amortisation of an indefinite life intangible asset had no bearing on the manner of recovering its carrying amount.  An intangible asset with an indefinite life was consumed, but there was no foreseeable limit on the period during which an entity expects to consume its benefits.  Accordingly, even though an entity did not amortise an indefinite life intangible asset, an entity may expect to recover its carrying amount through use.

Staff recommendation

The staff recommended not to add the issue into the Interpretations Committee’s agenda. The staff proposed a tentative agenda decision which was included in appendix A of the agenda paper.


The Interpretations Committee approved the staff recommendation to issue an agenda decision.

During the discussion there was general support for the staff recommendation. The Interpretations Committee members noted that the decision would help to clarify the issue.

A few concerns were raised about the wording of the agenda decision:

  1. the importance to point out that there was no default position and that an indefinite-life intangible asset could be recovered either through use or sale—the staff agreed to add one sentence to reflect this point.
  2. the agenda decision should not contradict the requirements already stated in IAS 12 for land or any other aspect in that standard.

The Chairman told the Interpretations Committee that they would receive a revised agenda decision incorporating these changes.   

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