IAS 12 — Tax consequences under multiple tax regimes

Date recorded:

Agenda Paper 7


The Committee received a submission asking how an entity accounts for deferred taxes when the recovery of the carrying amount of an asset gives rise to multiple tax consequences. In some tax jurisdictions, the manner in which an entity recovers the carrying amount of an asset—for example, whether it recovers the asset through use or through sale—determines the tax consequences that follow from such recovery. The tax law may also prohibit entities from offsetting taxable profit or loss arising from one manner of recovery (e.g. through use) from taxable profit or loss arising from another manner of recovery (e.g. through sale).

In the fact pattern described in the submission, the entity acquires a licence (intangible asset) as part of business combination. The entity expects to recover the carrying amount of the licence only through use, and the expected residual value of the licence at expiry is nil. The applicable tax law prescribes two different tax regimes: income tax regime (pay income tax on the asset's economic benefits but receive no tax deductions in respect of amortisation of the licence) and capital gain tax regime (receive a tax deduction when the licence expires). The tax law prohibits the entity from using the capital gain tax to offset the taxable economic benefits from use in determining taxable profit. The submitter asks, in accounting for the deferred tax arising on initial recognition of the licence, should the entity identify a single tax base or account for the tax consequences under each regime separately.

Staff analysis

The staff analysed the fundamental principles in IAS 12:10 that 'where the tax base of an asset or liability is not immediately apparent, it is helpful to consider the fundamental principle upon which this Standard is based'. The same paragraph describes, as that fundamental principle, 'that an entity shall, with certain limited exceptions, recognise a deferred tax liability (asset) whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences'. In order to reflect separately the distinct tax consequences of recovering the carrying amount of the asset when measuring deferred tax associated with the asset, the entity shall (a) apply the tax rate applicable under each regime to the respective temporary differences to calculate the deferred tax liability and deferred tax asset, and (b) assess whether to recognise a deferred tax asset for the deductible temporary difference by reference to the probability of future taxable profits assessed under the capital regime only.

Staff recommendation

The staff did not recommend to add the matter to the Committee's standard-setting agenda but publish an agenda decision.


Most of the Committee members agreed with staff analysis. Some of them were troubled by the view that the tax base is not apparent. The staff and other members explained that the determination of tax base is very clear in this fact pattern and IAS 12:10 is also clear to lead to the conclusion of the question.

The Committee decided, by a majority of votes, not to add the matter to the standard-setting and to adopt the tentative agenda decision.

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