IASB and FASB Meeting October 2005

The boards considered two issues:

• (a) uncertain tax positions and
• (b) the effect of using the undistributed rate to measure tax assets and liabilities for entities that regard themselves as tax-exempt because of tax deductions available on distributions.

On uncertain tax positions, the boards confirmed their desire to arrive at converged requirements. They noted that the FASB’s redeliberation of its proposals following the comments on its draft Interpretation and the IASB’s development of its proposals for inclusion in its forthcoming exposure draft would give the boards the opportunity to explore possibilities for a converged answer.

On the effect of using the undistributed rate to measure tax assets and liabilities by entities that regard themselves as tax-exempt, the boards expressed concern about the conclusions presented by the staff. They asked the staff to explore the following alternatives:

• keep the proposed requirements, noting that an entity that committed to making a distribution would recognise the distribution and the related deduction.
• create a definition of an ‘in-substance tax-exempt entity’ that would cover entities whose tax structure is set up to avoid subjecting shareholders to double taxation and that involves tax deductions being available if the entity distributes all or almost all of its total taxable income.
• require a ‘point in time’ analysis of whether an entity has the ability to qualify as effectively tax-exempt, in which case it would be treated as tax-exempt. Disclosure would be required of why such an entity qualifies and what it has to do in the future to continue to qualify.
• allow the effects of a distribution outside the entity to be included as a tax planning strategy in determining whether the recovery of an asset or settlement of a liability has taxable consequences, and hence whether a temporary difference exists.