IFRIC 23 Uncertainty over Income Tax Treatments

The International Accounting Standards Board has issued IFRIC 23 Uncertainty over Income Tax Treatments

It may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept a company’s tax treatment. IAS 12 Income Taxes specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. IFRIC 23 provides requirements that add to the requirements in IAS 12 by addressing the following issues when there is uncertainty over income tax treatments:

• whether an entity considers uncertain tax treatments separately or together with one or more other uncertain tax treatment.  IFRIC 23 requires tha the approach to use should be  based on whichever better predicts the resolution of the uncertainty
• the assumptions an entity makes about the examination of tax treatments by taxation authorities.  IFRIC 23 requires an entity to assume that the taxation authorities will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations.
• how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.  IFRIC 32 require an entity to consider the probability that the tax authorities will accept or reject an uncertain tax treatment, with the accounting treatment being driven by the conclusion of that assessment; and
• how an entity considers changes in facts and circumstances.  IFRIC 23 requires an entity to reassess judgements or estimates required if the facts and circumstances on which the judgement or estimate was based change or as a result of new information that affects the judgement or estimate.  Further, it requires that any such re-assessment should be accounted for prospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, and to apply IAS 10 Events after the Reporting Period to determine whether a change occurs after the reporting period is an adjusting or non-adjusting event.

The Interpretation is effective for periods beginning on or after 1 January 2019.  Early application is permitted.  An entity may apply IFRIC 23 on a fully retrospective basis, or retrospectively with the cumulative effect of initially applying the Interpretation recognised at the date of initial application rather than through the restatement of comparatives.

IFRIC 23 is available from the IASB’s web site for those with an eIFRS subscription here.