IAS 12 - Corporate Income Tax

Topic

IFRS

VAS

IAS 12 and VAS 17 – Corporate Income Tax

Objectives

To regulate and guide corporate income tax accounting principles and methods. A key issue in corporate income tax accounting is how to account for the present and future tax effects of:

a) The collection or payment of the carrying amount of assets or liabilities in the Balance Sheet;

b) Other transactions and events during the current period have been recorded in the Statement of Profit or Loss.

Carry forward tax losses to previous periods

When the tax loss is used to recover current tax of a previous period, an entity recognizes the benefit as an asset in the period in which the tax loss occurs because it is probable that the the benefit will flow to the entity and the benefit can be reliably measured.

Tax loss cannot carry backward.

Recognition of

deferred tax liabilities

A deferred tax liability shall be recognised for all taxable temporary differences,

except to the extent that the deferred tax liability arises from

(a) The initial recognition of goodwill; or

(b) The initial recognition of an

asset/liability in a transaction which:

(i) not a business combination; and

(ii) at the time of the transaction, affects neither accounting profit nor

taxable profit (tax loss).

An exception for not recording deferred tax arising from the initial recognition of an asset/liability other than in a business combination which, at the time of the transaction, does not affect either the accounting or the taxable profit.

Recognition of

deferred tax assets

A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises

from the initial recognition of an asset or liability in a transaction that:

(a) is not a business combination; and

(b) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset shall be recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction which at the time of transaction, affects neither accounting profit nor taxable profit (tax loss).

Measurement of

deferred tax assets and liabilities

When different tax rates apply to different levels of taxable income, deferred tax assets and liabilities are

measured using the average rates that are expected to apply to the taxable profit (tax loss) of the periods in which

the temporary differences are expected to reverse.

VAS does not provide a guideline on the measurement of deferred tax assets and liabilities.

Recognition of tax

expense or income

Current and Deferred tax is recognized as income or expense and included in Statement of Comprehensive Income, except to the extent that the tax arises from:

- Transactions or events that are recognized outside of Statement of

Comprehensive Income (Other Comprehensive Income or Statement of Change in Equity) - in which the related tax amount is also recognized outside of Statement of Comprehensive Income.

- A business combination - in which the tax amounts are recognized as identifiable assets or liabilities at the acquisition date, and accordingly

affect the determination the determination of goodwill or gain on acquisition when applying IFRS 3 - Business Combinations.

VAS does not provide a guideline on the recognition of current tax in case of tax arising from a business combination.

Tax consequences of dividends

As a parent controls the dividend policy of its subsidiary, it is able to control the timing of the reversal of temporary differences associated with that investment (including the

temporary differences arising not only from undistributed profits but also from any foreign exchange translation differences). Furthermore, it would often be impracticable to determine the amount of income taxes that would be payable when the temporary difference reverses. Therefore, when the parent has determined that those profits will not be distributed in the foreseeable future the parent does not recognise a deferred tax liability. The same considerations apply to investments in branches.

VAS does not provide a guideline on tax consequences of dividends.