IAS 33 — Tax arising from payments on participating equity instruments

Date recorded:


In its March 2017 meeting, the IC discussed how an entity determines profit attributable to ordinary shareholders when calculating basic earnings per share (EPS). The case involves an entity that has issued participating preference shares, the dividends on which are deductible for tax purposes. The submitter asked whether the potential tax savings on a hypothetical declaration of dividends on the preference shares should be included in the numerator of the basic EPS calculation.

The IC concluded that when calculating basic EPS, an entity adjusts profit or loss attributable to ordinary shareholders for the portion of any tax benefit attributable to those ordinary shareholders. The IC concluded that the requirements in IAS 33 provide an adequate basis for an entity to calculate basic EPS in this situation and decided not to add the issue onto its agenda. However, the IC asked the Staff to prepare a comprehensive example to illustrate how to apply the requirements of IAS 33 to this case.

Staff analysis of comment letters received

Four comment letters were received. Most of them were supportive of the IC’s technical analysis. Some respondents requested the IC to work through a comprehensive example to see whether the outcome is indeed appropriate, and to consider variations to the fact pattern, e.g. to consider the hypothetical and actual distributions of profits, as well as how the model would apply in a loss situation and when the preference shareholders are also entitled to share in the tax benefits.

Appendix B to the paper includes an example illustrating how an entity determines the numerator of the basic EPS calculation over a number of periods. The example, as well as the Staff’s response to the respondents’ questions, are analysed on the backbone of IAS 33.A14(b) which requires an entity to allocate any remaining profit or loss ‘to ordinary shares and participating equity instruments… as if all of the profit or loss for the period had been distributed’. Based on their analysis, the Staff did not believe that there is a need to amend the tentative agenda decision.

Staff recommendations

The Staff recommended that the IC finalise the agenda decision and to supplement it with the example in the paper.


The IC approved the Staff recommendation with no significant discussion. The IC found the example useful and decided to publish the agenda decision together with the example without re-exposure.

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