IAS 12 - Changes in reporting Deferred Tax related to Assets and Liabilities arising from a Single Transaction

24. June 2021
  • Alice Šrámková

In May 2021, the International Accounting Standards (IASB) Board issued the following amendment of the IAS 12 standard on Income Taxes.  The previous version of the IAS 12 contained an exception from reporting a deferred tax-related asset or liability in a transaction, which is not a business combination and at the time of the initial reporting it influences neither accounting profit (loss) nor taxable profit (loss). To this stipulation, another condition has now been added for applying the exception when first reporting of an asset or liability.  This condition demands that in such a transaction, no taxable and deductible differences arise in the same amount. 

The practical impact of this condition is in the area of lease, which was also one of the reasons, why IASB proceeded to this adjustment.  When first reporting lease, a liability arises on the one hand and an asset on the other, both of these entries will be evaluated with the current value of future lease payments.  The tax base of this liability is zero, because the lessee will in future apply all lease payments as cost.  The tax base of the asset is also zero, because the lessee cannot apply tax depreciation on this asset.  According to the amended version, deferred tax liability and deferred tax receivable in the same amount arise for the lessee from these transactions, which must be reported.

This legislation is effective for accounting periods beginning after 1 January 2023.  Nevertheless, for use in the EU, evaluation by the EFRAG (European Financial Reporting Advisory Group) and subsequent approval by the European Commission are still needed.  According to the information published on EFRAG website, approval by the European Commission can be expected before these changes are to take effect.

Author: Alice Šrámková