IASB July 2005

The Board considered papers on two issues:

• guidance on tax base and
• special deductions.

Guidance on tax base

The Board decided to add guidance to IAS 12 Income Taxes as follows:

• implementation guidance on how to derive a tax balance sheet. The staff noted that clarification was needed in some examples to separate the determination of the tax base from the fact that a temporary difference does not exist if there are no taxable consequences of recovering an asset. The Board asked that the proposed guidance regard the process as a whole, rather than splitting the derivation of the tax balance sheet into separate steps of a mechanical double entry followed by adjustments to reflect the deductions available (see observer notes). The Board also noted that it would be helpful (1) to discuss how the temporary difference approach builds up from a timing difference approach, (2) to include all the years in question separately in the examples, and (3) to distinguish clearly the fact pattern presented in each example from the consequences of the fact pattern.
• guidance on the tax base when different deductions are available depending on whether an asset is used or sold. The Board asked the staff to develop an example that illustrates the potential impairment of an asset that was recovered in a way that did not result in the tax deductions supporting the tax base being available.
• guidance on the tax rate to use when different rates are applicable depending on whether an asset is used or sold. The principle would be in the Standard, with illustrative examples in implementation guidance.
• guidance on the tax base when different deductions are available depending on whether an asset is sold separately or in a single-asset entity. The principle would be in the Standard, with illustrative examples in implementation guidance.
• procedures for the computation of deferred taxes. This would be implementation guidance. The Board asked the staff to ensure that the procedures covered consolidation adjustments in addition to the deferred taxes arising in the individual entities within a group.

The Board decided to amend the descriptions of cost and fair value in IAS 16 Property, Plant and Equipment, IAS 38 Intangible Assets and IAS 40 Investment Property to clarify that cost (on initial recognition) means fair value assuming full deductibility for tax purposes of the amount paid.

Special deductions

The Board asked the staff to consider the treatment of special deductions and the treatment of uncertain tax positions to determine whether there are similar issues that should be treated consistently. The Board also asked the staff to consider whether an approach consistent with the Board’s proposed amendments to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance should be applied to special deductions.

Format of the Exposure Draft

The Board considered whether, in developing the exposure draft of the proposed amendments to IAS 12, it should also restructure IAS 12 to make it easier to understand. The Board decided to try rewriting IAS 12 so as to leave the requirements unchanged (except for those amendments proposed in this project), but to highlight the principles and to extract the examples and reasoning that would, in an IFRS, form part of implementation guidance and the basis for conclusions.