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IFRS IAS 12 Income Taxes

IFRS IAS 12 Income Taxes

IFRS IAS 12 Income Taxes  – Income Taxes is part of the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). IAS 12 sets the accounting treatment of all taxable profits and losses, both national and foreign.

IFRS IAS 12 Income Taxes

IFRS IAS 12 Income Taxes

IFRS IAS 12 Income Taxes- Timeline of IAS 12:

DateDevelopment
April 1978Exposure Draft E13 Accounting for Taxes on Income published
Juli 1979IAS 12 Accounting for Taxes on Income issued
January 1989Exposure Draft E33 Accounting for Taxes on Income published
January 1994IAS 12 (1979) was reformatted
Oktober 1994Exposure Draft E49 Income Taxes published
Oktober 1996IAS 12 Income Taxes issued
Oktober 2000Limited Revisions to IAS 12 published (tax consequences of dividends)
March 2009Exposure Draft ED/2009/2 Income Tax published
September 2010Exposure Draft ED/2010/11 Deferred Tax: Recovery of Underlying Assets (Proposed amendments to IAS 12) published
December 2010Amended by Deferred Tax: Recovery of Underlying Assets
January 2016Amended by Recognition of Deferred Tax Assets for Unrealised Losses

IFRS IAS 12 Income Taxes- What we have:

The taxable amount a company is liable for is composed of its tax base multiplied with the relevant tax rate in its country of settlement. The tax base for a company will in general be the final amount reported in the statement of profit or loss plus or minus any comprehensive income or loss.

There are however situations where the accounting profit may differ from the taxable profit. This difference that arises most likely needs to be settled in a future period. Therefor the difference needs to be recognised on the balance sheet as a tax asset or liability. Note that a tax asset is only recognisable to the extent that is likely to be recovered in the future, where a tax liability always needs to be recognised in full.

IFRS IAS 12 Income Taxes

Objective of IAS 12

The objective of IAS 12 (1996) is to prescribe the accounting treatment for income taxes.

In meeting this objective, IAS 12 notes the following:

  • It is inherent in the recognition of an asset or liability that that asset or liability will be recovered or settled, and this recovery or settlement may give rise to future tax consequences which should be recognised at the same time as the asset or liability
  • An entity should account for the tax consequences of transactions and other events in the same way it accounts for the transactions or other events themselves.

IFRS IAS 12 Income Taxes

Key definitions

Tax baseThe tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes
Temporary differencesDifferences between the carrying amount of an asset or liability in the statement of financial position and its tax bases
Taxable temporary differencesTemporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled
Deductible temporary differencesTemporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled
Deferred tax liabilitiesThe amounts of income taxes payable in future periods in respect of taxable temporary differences
Deferred tax assetsThe amounts of income taxes recoverable in future periods in respect of:

  1. deductible temporary differences
  2. the carry forward of unused tax losses, and
  3. the carry forward of unused tax credits

IFRS IAS 12 Income Taxes

as issued at 1 January 2012. Includes IFRSs with an effective date after 1 January 2012 but not the IFRSs they will replace. This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards. The objective of this Standard is to prescribe the accounting treatment for income taxes. For the purposes of this Standard, income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint venture on distributions to the reporting entity.

The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:

(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position.

(b) transactions and other events of the current period that are recognised in an entity’s financial statements. Recognition Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability.

If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognised as an asset. Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

It is inherent in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that recovery or settlement of that carrying amount will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences, this Standard requires an entity to recognise a deferred tax liability (deferred tax asset), with certain limited exceptions.

IFRS IAS 12 Income Taxes

Measurement Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities shall not be discounted. The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. An entity shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.

This Standard requires an entity to account for the tax consequences of transactions and other events in the same way that it accounts for the transactions and other events themselves. Thus, for transactions and other events recognised in profit or loss, any related tax effects are also recognised in profit or loss.

For transactions and other events recognised outside profit or loss , any related tax effects are also recognised outside profit or loss. Similarly, the recognition of deferred tax assets and liabilities in a business combination affects the amount of goodwill arising in that business combination or the amount of the bargain purchase gain recognised.

IFRS IAS 12 Income Taxes

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