IAS 12 – Uncertain tax positions

In January 2014, the IFRS IC considered a request for guidance on the recognition of a current tax asset (in the sense of IAS 12) when the tax position was uncertain.

Keywords: Mazars, Thailand, IFRS IC, IFRS 15, IFRIC, IASB, IAS 12

13 February 2015

In the situation described, an entity is legally required to pay the amounts demanded by the tax authorities immediately after an examination; however, the entity expects, but is not certain, to recover some or the entire amount paid on appeal.

In its final decision in July 2014, the IFRS IC noted that:

  • it would address the issue of recognition of an asset separately from that of its measurement;
  • in the particular case submitted to the Interpretations Committee, the guidance in paragraph 12 of IAS 12 was sufficient: an asset is recognised if the amount of cash paid (which is a certain amount) exceeds the amount of tax the entity expects to be due (which is an uncertain amount).

The IFRS IC subsequently discussed the measurement of uncertain tax positions with reference to current income tax (in accordance with IAS 12) on several occasions and decided to publish guidance in the form of a draft interpretation.

In the November 2014 IFRIC Update, the Committee presented its first thoughts on this future interpretation:

  • Scope: all uncertain income tax positions should be included within the scope of the future guidance. The Committee thought that it was inappropriate to limit the scope to cases where an entity has unresolved disputes with a tax authority. Consequently, a current tax asset or liability should be recognised only if it is probable that the entity will pay the amount to, or recover the amount from, a tax authority. This confirms that the probability of the payment or recovery is the threshold that triggers recognition;
  • Approach for measurement:

          -   Applicable methods: drawing on the provisions of IFRS 15 for the measurement of variable consideration, the Interpretations Committee observed that an entity should use the most likely amount or the expected value, depending on which method the entity expects to better predict the amount that it will pay to (or recover from) the tax authorities.

          -   Unit of account: the Committee observed that an entity should make a judgement about the unit of account that provides relevant information for measuring uncertain tax positions. For example, if a decision on a specific uncertain tax position is expected to affect, or be affected by, other tax positions, all of these positions should be accounted for as a single uncertain tax position.

         -   Detection risk: the Interpretations Committee reminded it had tentatively concluded in September 2014 that an entity should assume that the tax authorities will examine the amounts reported to them and have full knowledge of all relevant information. Consequently, when evaluating the probability of payment, entities should assume that an examination is 100% probable, and it should also assume a 100% probability of detection.