On 7 June 2017, the International Accounting Standards Board (IASB) issued IFRIC 23 uncertainty over Income Tax Treatments. IFRIC 23 clarifies how uncertain tax treatments should be taken into account when measuring taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates before applying the requirements of IAS 12.
IAS 12 Income Taxes specifies how to account for current and deferred tax but it does not address how the effects of uncertainty should be reflected.
The Interpretation sets out the following requirements:
- Uncertainties should be assessed individually or collectively depending on which approach provides the best prediction of the resolution of the uncertainty.
- An entity should assume that the tax authority will examine all the information and that it will have full knowledge of all related information when making those examinations.
- The entity must consider whether it is probable or not that a tax authority will accept an uncertain tax treatment or group of uncertain tax treatments.
- When it is not probable that the authority will accept the uncertain tax treatment, the effect of the uncertainty must be factored into the related taxable profit (tax loss), unused tax losses, unused tax credit or tax rate by using the most likely amount or the expected value (whichever better predicts the resolution of the uncertainty).
- Judgements or accounting estimates will be revised, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, if the facts and circumstances on which they were based change or new information becomes available. In determining when to apply the effects of a change that occurs after the reporting period an entity applies IAS 10 Events after the Reporting Period.
The application guidance in IFRIC 23 highlights the existing disclosure requirements of IAS 1 Presentation of Financial Statements and IAS 12 to consider whether to disclose the judgements and provide information about assumptions and estimates made when there is uncertainty over income tax treatments.
The Interpretation is effective for periods commencing on or after 1 January 2019. However, earlier application is permitted as long as the fact is disclosed.
The Interpretation applies retrospectively. An entity may restate its comparatives if it is possible to do so without the use of hindsight. Alternatively, it may adjust retained earnings (or other component of equity, as appropriate) as at the date of initial application without restating comparative information.
For more information, please contact Alan Aitchison.