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

Date recorded:


The Interpretations Committee received a request to clarify the determination of the expected manner of recovery of indefinite life intangible assets for the purposes of measuring deferred taxes. The question arises when: (a) for financial reporting purposes, an intangible asset is considered to have an indefinite life and is therefore not amortised in applying IAS 38 Intangible Assets; (b) the applicable tax law allows or requires the asset to be amortised and the amortisation is deductible in determining taxable income; and (c) as a result, the asset’s tax base differs from its carrying amount. The submitter identified three views: (i) use the tax rate (and tax base) applicable to ordinary taxable income unless there is 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 purpose of this session was to discuss the issue, analyse the staff research and the staff recommendation.

Staff analysis

The staff conducted outreach activities with accounting standard setters and accounting firms to identify whether the issue was common and there was diversity in practice. The majority of standard-setters indicated that the issue is not common while the accounting firms indicated that the issue is common and there is diversity in practice. The staff indicated that paragraphs 51 and 51A of IAS 12 provided the general principle to identify the appropriate tax rate; which require an entity to consider the expected manner of recovery while paragraphs 51B and 51C of IAS 12 were applicable to specific type of assets (non-depreciable assets measured under the revaluation model under IAS 16 and investment property) which required an entity to apply the tax rate considering that the asset would be sold. The staff considered that intangible assets could not be considered as non-depreciable assets because having indefinite life did not mean having unlimited life. Accordingly, an entity must apply the general principle of IAS 12 to determine the applicable tax rate for measuring deferred taxes.  The staff also noted that the Board had already considered including specific requirements relating to deferred tax arising from intangible assets measured using the revaluation model in IAS 38 when amended IAS 12 in 2010 but, on the basis of the feedback received, decided not to do so.

Staff recommendation

The staff recommended that the Interpretations Committee should not take this issue into its agenda because the staff considered that the Standard provides sufficient guidance to measure deferred taxes. Appendix A of the agenda paper included the wording for the tentative agenda decision suggested by the staff.


The Interpretations Committee did not reach a decision. The topic will be discussed again in July to address the concerns raised during the meeting.


A majority of the Interpretations Committee members indicated that they agreed with the staff analysis. However, one member expressed a concern that the agenda decision did not address the question raised by the submitter. The agenda paper did not address whether the fact that an asset was not being amortised would imply that it would be recovered through sale. The staff did not explore whether the expected manner of recovery should be consistent with the way the asset was reflected charged in the P&L.

Another concern was that diversity still existed in the application of IAS 12.51 and 12.51(a). The agenda decision should state whether it was relevant or not the way the asset was being charged in the P&L. The staff indicated that they believed they had addressed the question raised by the submitter. The staff was concerned that exploring the issue further would be difficult. Some Interpretations Committee members also indicated that they would prefer not to analyse the issue further.

The Chairman concluded that the issue would be brought back in July so that the staff can consider the concerns raised in this session.

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