We disagree with IASB's income tax ED

  • Deloitte Comment Letter Image

01 Aug 2009

Deloitte has submitted comments on the IASB Exposure Draft Income Tax.

We acknowledge the Board's objectives in its income tax project to address the significant practical and conceptual issues arising under IAS 12 Income Taxes and achieve closer convergence with US GAAP. However, we question whether these objectives have been met in the ED. We recommend the IASB does not proceed with the proposals in the ED and instead commences a more thorough and comprehensive project. We appreciate this will result in a further delay in meeting the IASB's timetable in this area and suggest any particularly pressing issues are dealt with through the improvements process whilst the more comprehensive project is undertaken. We have commented throughout our response on a number of issues which annual improvements could redress. Below is an excerpt from our letter. Click to:

We believe clear principles have not been established and articulated in the ED. Furthermore, many of the proposals are ambiguous or produce counterintuitive outcomes which are difficult to reconcile from a conceptual viewpoint. It is difficult to understand the IASB's intention in developing the various 'rules' proposed in the ED, save perhaps an intention to simplify the current Standard by mandating a particular approach. However, we expect an IFRS based on the ED's current proposals will not be well accepted by constituents as these 'rules' will:

  • produce outcomes that are inconsistent with the Framework
  • not be representationally faithful of the economic substance of the underlying tax consequences expected, and
  • be difficult to rationally explain.
In particular, we believe the starting point of the proposed calculation methodology, the definition of tax basis, and its reliance on an assumption of sale at the reporting date is flawed, does not produce meaningful outcomes and is unhelpful in addressing the issues commonly arising under IAS 12. We believe that the existing 'management intention' approach should be retained and specific guidance be developed to eliminate existing uncertainties in applying the approach. In our view, this would provide more meaningful information to the users of the financial statements as it better reflects the actual future tax consequences an entity expects.


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