IFRIC 23 was issued in June 2017. We informed you in detail about the new standard in the Accounting News in July 2017. In today’s article, we will summarise key changes arising from IFRIC 23.

Background
A question has arisen in practice as to how uncertainty about the acceptability by a tax authority of a particular tax treatment used by an entity in its income tax filings (‘uncertain tax treatment’) should be reflected in the financial statements. As a consequence, the Interpretations Committee decided to develop an interpretation.

Scope
The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12 Income Taxes.

Issues and consensus

Whether tax treatments should be considered collectively
An entity is required to use judgement to determine whether each tax treatment should be considered independently or whether some tax treatments should be considered together. The decision should be based on which approach provides better predictions of the resolution of the uncertainty.

Assumptions for taxation authorities’ examinations
An entity is to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so.

Determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
An entity has to consider whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments, that it used or plans to use in its income tax filing.

• If the entity concludes that it is probable that a particular tax treatment is accepted, the entity has to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.
• If the entity concludes that it is not probable that a particular tax treatment is accepted, the entity has to use the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The decision should be based on which method provides better predictions of the resolution of the uncertainty.

Effect of changes in facts and circumstances
An entity has to reassess its judgements and estimates if facts and circumstances change.

Disclosures
The interpretation does not contain any new disclosure requirements. Instead it highlights existing disclosure requirements in IAS 1 and IAS 12.

Effective date and transition
An entity applies IFRIC 23 for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted.

Entities can apply the Interpretation using either of the following approaches:

• Full retrospective approach: this approach can be used only if it is possible without the use of hindsight. The application of the new Interpretation will be accounted for in accordance with IAS 8, which means comparative information will have to be restated; or
• Modified retrospective approach: no restatement of comparative information is required or permitted under this approach. The cumulative effect of initially applying the Interpretation will be recognised in opening equity at the date of initial application, being the beginning of the annual reporting period in which an entity first applies the Interpretation.

Source:
www.iasplus.com
IFRIC 23

The article is part of dReport – December 2018, Accounting news.