According to the May 2021 Newsletter of the IFRS Foundation, we are explained about Deferred Taxes related to assets and liabilities arising from a Single Transaction, i. e., the amendments to IAS 12. Let’s see:
1. Amendments to IAS 12
Paragraphs 15, 22, and 24 were amended. Similarly, paragraphs 22A and 98J to 98L were added. According to paragraph 15, a deferred tax liability shall be recognized for any taxable temporary difference, except to the extent it arises from:
- the initial recognition of a capital gain; or
- the initial recognition of an asset or liability in a transaction that:
- Is not a business combination.
- Does not affect either accounting profit or taxable profit (loss) when the transaction is being carried out.
- Does not lead to taxable or deductible temporary differences of equal amount when the transaction is being carried out.
2. Incorporation of paragraph 22A
According to paragraph 22A, a transaction that is not a business combination may lead to the initial recognition of an asset or a liability and does not affect either accounting profit or taxable profit when the transaction is being performed.
For example, at the commencement of a lease term, a lessee usually recognizes a lease liability and a corresponding amount as part of the cost of a right-of-use asset. Depending on the applicable tax law, taxable and deductible temporary differences of an equal amount may arise on initial recognition of the asset and liability in such a transaction. The exemption provided by paragraphs 15 and 24 does not apply to these temporary differences, and an entity recognizes any resulting deferred tax assets and liabilities.
3. Temporary deductible differences
According to the new paragraph 24, a deferred tax asset is recognized for all deductible temporary differences to the extent probable that the entity has future taxable profit against those using temporary deductible differences unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: (a) is not a business combination, (b) does not affect either accounting profit or taxable income (loss) when the transaction is effected, or (c) does not lead to taxable and temporary deductible differences of equal amount when the transaction is effected.
4. Effectiveness
According to paragraph 98J, Deferred Taxes Related to Assets and Liabilities Arising from a Single Transaction, issued in May 2021, amended paragraphs 15, 22, and 24, adding paragraph 22A. An entity shall apply these amendments under paragraphs 98K and 98L for annual reporting periods beginning on January 1, 2023. Earlier application is permitted.
If an entity applies the amendments in a prior period, it shall disclose that fact. An entity shall apply Deferred Taxes related to Assets and Liabilities arising from a Single Transaction to transactions occurring as of the beginning of the first comparative period presented.
Source: IFRS 14/10/21