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New DTT guidance on accounting for income taxes

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27 Jun 2003

Deloitte Touche Tohmatsu has published a 120-page book of guidance on applying SSAP 12, Hong Kong's new standard on (PDF 1,090k).

Because SSAP 12 is substantially equivalent to IAS 12, we believe that this book will be of interest to all who apply IFRS. Chapters cover calculation of tax balances; current tax; deferred tax; tax bases; temporary differences; balance sheet recognition; measurement; recognition of the movement between the opening and closing balance sheets; and presentation and disclosure. There is also a chapter on applying the standard to Hong Kong circumstances including business combinations; investments; revaluations of properties; foreign currency translation; and compound financial instruments. Appendices include example tax worksheets; a presentation and disclosure checklist; illustrative disclosures; and an international comparison.

There are two main differences between SSAP 12 and IAS 12. The first is that the Hong Kong standard includes significant additional implementation guidance within the body of SSAP 12 that is not in IAS 12. Secondly, with respect to revalued investment property (including freehold land, land use rights, and buildings) the Hong Kong standard has arrived at a "Hong Kong solution for a Hong Kong problem". Under SSAP 12, deferred tax on all revalued investment property should be measured based on the tax consequences that would follow from recovery of the carrying amount of the asset through sale. Since the Hong Kong tax law provides for no capital gains tax on sale of investment property, minimal deferred tax would be recognised. This is, in effect, an extension of the scope of SIC 21, which applies only to freehold land. The Hong Kong Society of Accountants expects to reconsider this difference after completion of the IASB's Improvements and Convergence projects.

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