The International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 23, “Uncertainty Over Income Tax Treatments,” in June 2017 to specifically address the treatment of uncertain tax positions under International Financial Reporting Standards (IFRS). IFRIC 23 is effective for annual reporting periods beginning on or after Jan. 1, 2019, and, as such, many companies will need to address the new requirements for their 2019 financial reporting obligations. Similar to U.S. GAAP’s Accounting Standards Codification (ASC) 740-10-25 (FIN 48), IFRIC 23 adopts a two-step approach for recognition and measurement. Also like U.S. GAAP, IFRIC 23 requires companies to assume that the taxing authorities have full knowledge of all relevant information in their assessment and that detection risk is ignored.
In the first step – the recognition test – a company assesses its tax positions using a probable test and determines if it is probable that the taxing authorities will accept the company’s tax treatment as reported on return(s) or return(s) to be filed. For this purpose, “probable” is defined as “more likely than not.” If the company concludes that it is probable, the company will recognize the full benefit of the tax position as reported on the return(s) or the return(s) to be filed.