23 October 2015
kpmg.com/ifrs
Uncertainty over income tax treatments
Draft IFRIC aims to reduce diversity
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A new draft IFRIC seeks to clarify the accounting for income tax treatments that have yet to be accepted by tax authorities, whilst also aiming to enhance transparency.The impact of the proposals will depend on your current accounting. While we welcome the greater clarity and transparency, this is a sensitive issue that has generated much controversy. We urge you to read the proposals and participate in the debate.
Reflecting tax uncertainty in financial statements
Sanel TomlinsonKPMG’s global IFRS income taxes leader
2© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What’s the issue?
So how do you reflect uncertainty in accounting for
income tax?
Tax is a sensitive topic, triggering debate about tax transparency both within and beyond the
board room
Tax
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The proposals1
4© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The proposalsWhose perspective?
Users of financial statements
Tax authorities
The proposals focus on…
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The proposalsWhen would you provide for uncertainty?
No:
Yes: =
≠
Assume that the tax authority would have full knowledge of all relevant information
Is it probablethat the tax
authority would accept
the treatment?
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The proposalsHow would you measure uncertainty?
If it’s not probablethat the tax authority
would accept the treatment, reflect
that uncertainty using…
the expected value
…whichever provides a better prediction
the most likely amount
or
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The proposalsWhat happens later on?
Specific guidance would be applied,
based on…new evidence
such as inspections, court cases, clarifications
If circumstances change, you’d need to update the amount in the financial statements
the time limit for tax inspections
8© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The impactsAccounting and disclosures2
9© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The impactsAccounting
Depending on your current
accounting and jurisdiction… Tax inspections may not give visibility
It may be more complex to estimate the amount of income tax if various taxes are assessed together
Your current practice may change You may need to increase the tax liability or recognise an asset. The timing of derecognition may also change
10© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Users may expect moremeaningful disclosures
about…
…albeit under existing disclosure requirements
Judgements made
Potential impact of uncertainties not reflected
Assumptions and other estimates used
The impactsDisclosures
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Transition options and timeline3
12© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What are the proposed transition options?
1 January 20X6Start of
comparative period
1 January 20X7Start of year of
initial application
You would have a choice between:
on initial application, adjusting equity
without adjusting comparative information
retrospective applicationunder IAS 8
or
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21 October 2015IFRS IC
proposals issued
19 January 2016Comment deadline
Effective dateTo be determined
Timeline
14© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Next steps
Read the proposals Talk to your tax specialists and
advisers
Comment on the proposals by
19 January 2016
© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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