Agenda decision on accounting for deferred tax

The IFRS IC received a request about how an entity, in its consolidated financial statements, should account for deferred tax related to its investment in a subsidiary when profits are taxable only when distributed (i.e. only the group’s distributed profits are taxed; profit distributions that have already been taxed once at the subsidiary level are not taxed again at the parent company level).

Keywords: Mazars, Thailand, IFRS IC, IFRS, IAS 12, Deferred Tax

31 August 2020

The IFRS IC stated that this tax regime does not exempt the entity from applying the requirements of IAS 12 regarding investments in subsidiaries (paras. 38-45), notably the requirement to recognise a deferred tax liability for any positive temporary difference between the carrying amount of the investment and its tax base, if the parent is unable to control the timing of the reversal of the temporary difference or it is probable that the temporary difference will reverse in the foreseeable future.

In this situation, the IFRS IC stated that:

  • paragraph 57A of IAS 12 (which specifies that the income tax consequences of dividends shall be recognised when the entity recognises a liability to pay a dividend) only applies to dividends payable by the reporting entity (i.e. the parent company, in the case of consolidated financial statements);
  • paragraph 52A of IAS 12 (which specifies that the tax rate used to calculate current and deferred tax shall be that applicable to undistributed profits, in circumstances where the tax rate differs depending on whether or not profits are paid out as dividends) does not apply to the measurement of current or deferred tax that itself reflects the tax consequences of a distribution of profits – i.e. this paragraph does not apply to deferred tax measured in accordance with the requirements of IAS 12 regarding investments in subsidiaries (paras. 38-45).

The IFRS IC concluded that the principles of IAS 12 provide an adequate basis to address the request, so does not intend to pursue this matter beyond the agenda decision.