IAS 12

IAS 12

Income Taxes
In April 2001 the International Accounting Standards Board (Board) adopted
IAS 12 Income Taxes, which had originally been issued by the International Accounting
Standards Committee in October 1996. IAS 12 Income Taxes replaced parts of
IAS 12 Accounting for Income Taxes (issued in July 1979).

In December 2010 the Board amended IAS 12 to address an issue that arises when entities
apply the measurement principle in IAS 12 to temporary differences relating to
investment properties that are measured at fair value. That amendment also
incorporated some guidance from a related Interpretation (SIC‑21 Income Taxes—Recovery
of Revalued Non‑Depreciable Assets).

In January 2016 the Board issued Recognition of Deferred Tax Assets for Unrealised
Losses (Amendments to IAS 12) to clarify the requirements on recognition of deferred tax
assets related to debt instruments measured at fair value.

Other Standards have made minor consequential amendments to IAS 12. They include
IFRS 11 Joint Arrangements (issued May 2011), Presentation of Items of Other Comprehensive
Income (Amendments to IAS 1) (issued June 2011), Investment Entities (Amendments to
IFRS 10, IFRS 12 and IAS 27) (issued October 2012), IFRS 9 Financial Instruments (Hedge
Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013),
IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 9 Financial
Instruments (issued July 2014), IFRS 16 Leases (issued January 2016), Annual Improvements to
IFRS Standards 2015–2017 Cycle (issued December 2017) and Amendments to References to the
Conceptual Framework in IFRS Standards (issued March 2018).

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CONTENTS
from paragraph

INTERNATIONAL ACCOUNTING STANDARD 12

INCOME TAXES
OBJECTIVE
SCOPE 1
DEFINITIONS 5
Tax base 7
RECOGNITION OF CURRENT TAX LIABILITIES AND CURRENT TAX
ASSETS 12
RECOGNITION OF DEFERRED TAX LIABILITIES AND DEFERRED TAX
ASSETS 15
Taxable temporary differences 15
Deductible temporary differences 24
Unused tax losses and unused tax credits 34
Reassessment of unrecognised deferred tax assets 37
Investments in subsidiaries, branches and associates and interests in joint
arrangements 38
MEASUREMENT 46
RECOGNITION OF CURRENT AND DEFERRED TAX 57
Items recognised in profit or loss 58
Items recognised outside profit or loss 61A
Deferred tax arising from a business combination 66
Current and deferred tax arising from share-based payment transactions 68A
PRESENTATION 71
Tax assets and tax liabilities 71
Tax expense 77
DISCLOSURE 79
EFFECTIVE DATE 89
WITHDRAWAL OF SIC‑21 99
APPROVAL BY THE BOARD OF DEFERRED TAX: RECOVERY OF
UNDERLYING ASSETS (AMENDMENTS TO IAS 12) ISSUED IN DECEMBER
2010
APPROVAL BY THE BOARD OF RECOGNITION OF DEFERRED TAX
ASSETS FOR UNREALISED LOSSES (AMENDMENTS TO IAS 12) ISSUED IN
JANUARY 2016

FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION

ILLUSTRATIVE EXAMPLES

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

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International Accounting Standard 12 Income Taxes (IAS 12) is set out in paragraphs
1–99. All the paragraphs have equal authority but retain the IASC format of the
Standard when it was adopted by the IASB. IAS 12 should be read in the context of
its objective and the Basis for Conclusions, the Preface to IFRS Standards and
the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors provides a basis for selecting and applying accounting
policies in the absence of explicit guidance. [Refer: IAS 8 paragraphs 10–12]

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International Accounting Standard 12

Income Taxes

Objective
The objective of this Standard is to prescribe the accounting treatment for income taxes
[Refer: paragraph 2]. The principal issue in accounting for income taxes is how to account
for the current and future tax consequences of:

(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that
are recognised in an entity’s statement of financial position; and

(b) transactions and other events of the current period that are recognised in an
entity’s financial statements.

It is inherent in the recognition of an asset or liability that the reporting entity expects to
recover or settle the carrying amount of that asset or liability. If it is probable that
recovery or settlement of that carrying amount will make future tax payments larger
(smaller) than they would be if such recovery or settlement were to have no tax
consequences, this Standard requires an entity to recognise a deferred tax liability
(deferred tax asset), with certain limited exceptions. [Refer: paragraphs 15, 24, 39 and 44]

This Standard requires an entity to account for the tax consequences of transactions and
other events in the same way that it accounts for the transactions and other events
themselves. Thus, for transactions and other events recognised in profit or loss, any
related tax effects are also recognised in profit or loss. For transactions and other events
recognised outside profit or loss (either in other comprehensive income or directly in
equity), [Refer: IAS 1 paragraph 89] any related tax effects are also recognised outside profit
or loss (either in other comprehensive income or directly in equity, respectively).
[Refer: paragraphs 61–65A] Similarly, the recognition of deferred tax assets and liabilities in
a business combination [Refer: IFRS 3 paragraphs 24 and 25] affects the amount of goodwill
arising in that business combination or the amount of the bargain purchase gain
recognised. [Refer: paragraphs 66–68]

This Standard also deals with the recognition of deferred tax assets arising from unused
tax losses or unused tax credits, the presentation of income taxes in the financial
statements and the disclosure of information relating to income taxes. [Refer: paragraphs
34–36]

Scope
1 This Standard shall be applied in accounting for income taxes
[Refer: paragraph 2].

2 For the purposes of this Standard, income taxes include all domestic and
foreign taxes which are based on taxable profits. Income taxes also include
taxes, such as withholding taxes, which are payable by a subsidiary, associate
or joint arrangement on distributions to the reporting entity.E1,E2,E3,E4

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E1 [IFRIC® Update, March 2006, ‘IAS 12 Income Taxes–Scope’

The IFRIC considered whether to give guidance on which taxes are within the scope of
IAS 12. The IFRIC noted that IAS 12 applies to income taxes, which are defined as taxes that
are based on taxable profit. That implies that (i) not all taxes are within the scope of IAS 12
but (ii) because taxable profit is not the same as accounting profit, taxes do not need to be
based on a figure that is exactly accounting profit to be within the scope. The latter point is
also implied by the requirement in IAS 12 to disclose an explanation of the relationship
between tax expense and accounting profit. The IFRIC further noted that the term ‘taxable
profit’ implies a notion of a net rather than a gross amount. Finally, the IFRIC observed that
any taxes that are not in the scope of IAS 12 are in the scope of IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
However, the IFRIC also noted the variety of taxes that exist world-wide and the need for
judgement in determining whether some taxes are income taxes. The IFRIC therefore
believed that guidance beyond the observations noted above could not be developed in a
reasonable period of time and decided not to take a project on this issue onto its agenda.]

E2 [IFRIC® Update, May 2009, Agenda Decision, ‘IAS 12 Income Taxes—Classification of

tonnage taxes’
The IFRIC received a request for guidance on whether a tax based on tonnage capacity can
be considered an income tax in accordance with IAS 12. The IFRIC noted that the term
‘tonnage tax’ is applied to a variety of tax regimes. In some jurisdictions, shipping
companies are permitted to choose to be taxed on the basis of tonnage transported, tonnage
capacity or a notional profit instead of the standard corporate income tax regulations. In
some jurisdictions, this choice is irrevocable.
The IFRIC has previously noted that IAS 12 applies to income taxes, which are defined as
taxes that are based on taxable profit, and that the term ‘taxable profit’ implies a notion of a
net rather than a gross amount. Taxes either on tonnage transported or tonnage capacity are
based on gross rather than net amounts. Taxes on a notional income derived from tonnage
capacity are not based on the entity’s actual income and expenses.
Consequently, the IFRIC noted that such taxes would not be considered income taxes in
accordance with IAS 12 and would not be presented as part of tax expense in the statement
of comprehensive income. However, the IFRIC also noted that, in accordance with
paragraph 85 of IAS 1 Presentation of Financial Statements, an entity subject to tonnage tax
would present additional subtotals in that statement if that presentation is relevant to an
understanding of its financial performance. Given the requirements of IAS 12, the IFRIC
decided not to add the issue to its agenda.]

E3 [IFRIC® Update, July 2012, Agenda Decision, ‘IAS 1 Presentation of Financial

Statements and IAS 12 Income Taxes—Presentation of payments on non-income taxes’
The IFRS Interpretations Committee received a request seeking clarification of whether
production-based royalty payments payable to one taxation authority that are claimed as an
allowance against taxable profit for the computation of income tax payable to another
taxation authority should be presented as an operating expense or a tax expense in the
statement of comprehensive income.
As the basis for this request, the submitter assumed that the production-based royalty
payments are, in themselves, outside the scope of IAS 12 Income Taxes while the income
tax payable to the other taxation authority is within the scope of IAS 12. On the basis of this
assumption, the submitter asks the Committee to clarify whether the production-based
royalty payments can be viewed as prepayment of the income tax payable. The Committee
used the same assumption when discussing the issue.
continued...

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...continued
The Committee observed that the line item of ‘tax expense’ that is required by
paragraph 82(d) of IAS 1 Presentation of Financial Statements is intended to require an
entity to present taxes that meet the definition of income taxes under IAS 12. The Committee
also noted that it is the basis of calculation determined by the relevant tax rules that
determines whether a tax meets the definition of an income tax. Neither the manner of
settlement of a tax liability nor the factors relating to recipients of the tax is a determinant
of whether an item meets that definition.
The Committee further noted that the production-based royalty payments should not be
treated differently from other expenses that are outside the scope of IAS 12, all of which
may reduce income tax payable. Accordingly, the Committee observed that it is
inappropriate to consider the royalty payments to be prepayment of the income tax
payables. Because the production-based royalties are not income taxes, the royalty
payments should not be presented as an income tax expense in the statement of
comprehensive income.
The Committee considered that, in the light of its analysis of the existing requirements of
IAS 1 and IAS 12, an interpretation was not necessary and consequently decided not to add
this issue to its agenda.]

E4 [IFRIC® Update, September 2017, Agenda Decision, ‘IAS 12 Income Taxes—Interest and
penalties related to income taxes’
IFRS Standards do not specifically address the accounting for interest and penalties related
to income taxes (interest and penalties). In the light of the feedback received on the draft
IFRIC Interpretation Uncertainty over Income Tax Treatments, the Committee considered
whether to add a project on interest and penalties to its standard-setting agenda.
On the basis of its analysis, the Committee concluded that a project on interest and
penalties would not result in an improvement in financial reporting that would be sufficient
to outweigh the costs. Consequently, the Committee decided not to add a project on interest
and penalties to its standard-setting agenda.
Nonetheless, the Committee observed that entities do not have an accounting policy choice
between applying IAS 12 and applying IAS 37 Provisions, Contingent Liabilities and
Contingent Assets to interest and penalties. Instead, if an entity considers a particular
amount payable or receivable for interest and penalties to be an income tax, then the entity
applies IAS 12 to that amount. If an entity does not apply IAS 12 to a particular amount
payable or receivable for interest and penalties, it applies IAS 37 to that amount. An entity
discloses its judgement in this respect applying paragraph 122 of IAS 1 Presentation of
Financial Statements if it is part of the entity’s judgements that had the most significant
effect on the amounts recognised in the financial statements.
Paragraph 79 of IAS 12 requires an entity to disclose the major components of tax expense
(income); for each class of provision, paragraphs 84–85 of IAS 37 require a reconciliation of
the carrying amount at the beginning and end of the reporting period as well as other
information. Accordingly, regardless of whether an entity applies IAS 12 or IAS 37 when
accounting for interest and penalties, the entity discloses information about those interest
and penalties if it is material.
The Committee also observed it had previously published agenda decisions discussing the
scope of IAS 12 in March 2006 and May 2009.]

3 [Deleted]

4 This Standard does not deal with the methods of accounting for government
grants (see IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance) or investment tax credits. However, this Standard does deal with the
accounting for temporary differences that may arise from such grants or
investment tax credits.

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Definitions
5 The following terms are used in this Standard with the meanings specified:

Accounting profit is profit or loss for a period before deducting tax expense.

Taxable profit (tax loss) is the profit (loss) for a period, determined in
accordance with the rules established by the taxation authorities, upon
which income taxes [Refer: paragraph 2] are payable (recoverable).

Tax expense (tax income) is the aggregate amount included in the

determination of profit or loss for the period in respect of current tax and
deferred tax.

Current tax is the amount of income taxes [Refer: paragraph 2] payable

(recoverable) in respect of the taxable profit (tax loss) for a period.

Deferred tax liabilities are the amounts of income taxes [Refer: paragraph 2]
payable in future periods in respect of taxable temporary differences.

Deferred tax assets are the amounts of income taxes [Refer: paragraph 2]
recoverable in future periods in respect of:

(a) deductible temporary differences;

(b) the carryforward of unused tax losses; and

(c) the carryforward of unused tax credits.

Temporary differences are differences between the carrying amount of an

asset or liability in the statement of financial position and its tax base.
Temporary differences may be either:

(a) taxable temporary differences, which are temporary differences that

will result in taxable amounts in determining taxable profit (tax
loss) of future periods when the carrying amount of the asset or
liability is recovered or settled; or
[Refer:
paragraphs 15–23
Illustrative Examples Part A paragraphs 1–18]

(b) deductible temporary differences, which are temporary differences that

will result in amounts that are deductible in determining taxable
profit (tax loss) of future periods when the carrying amount of the
asset or liability is recovered or settled.
[Refer:
paragraphs 24–33
Illustrative Examples Part B paragraphs 1–13]

The tax base of an asset or liability is the amount attributed to that asset or
liability for tax purposes.
[Refer: paragraphs 7–11]

6 Tax expense (tax income) comprises current tax expense (current tax income)
and deferred tax expense (deferred tax income).

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Tax base
7 The tax base of an asset is the amount that will be deductible for tax purposes
against any taxable economic benefits that will flow to an entity when it
recovers the carrying amount of the asset.E5 If those economic benefits will not
be taxable, the tax base of the asset is equal to its carrying amount.
[Refer:
Illustrative Examples Part C paragraphs 1–4
Illustrative Examples: Illustrative computations and presentation examples 1–4]

Examples
1 A machine cost 100. For tax purposes, depreciation of 30 has already
been deducted in the current and prior periods and the remaining cost
will be deductible in future periods, either as depreciation or through a
deduction on disposal. Revenue generated by using the machine is
taxable, any gain on disposal of the machine will be taxable and any loss
on disposal will be deductible for tax purposes. The tax base of the machine
is 70.
2 Interest receivable has a carrying amount of 100. The related interest
revenue will be taxed on a cash basis. The tax base of the interest receivable is
nil.
3 Trade receivables have a carrying amount of 100. The related revenue
has already been included in taxable profit (tax loss). The tax base of the
trade receivables is 100.
4 Dividends receivable from a subsidiary have a carrying amount of 100.
The dividends are not taxable. In substance, the entire carrying amount of the
asset is deductible against the economic benefits. Consequently, the tax base of the
dividends receivable is 100.(a)
5 A loan receivable has a carrying amount of 100. The repayment of the
loan will have no tax consequences. The tax base of the loan is 100.

(a) Under this analysis, there is no taxable temporary difference. An alternative

analysis is that the accrued dividends receivable have a tax base of nil and that a
tax rate of nil is applied to the resulting taxable temporary difference of 100.
Under both analyses, there is no deferred tax liability.

E5 [IFRIC® Update, July 2012, Agenda Decision, ‘IAS 12 Income Taxes—Accounting for market
value uplifts on assets that are to be introduced by a new income tax regime’
The IFRS Interpretations Committee received a request to clarify the accounting for market
value uplifts introduced in a new income tax regime in a jurisdiction.
In calculating taxable profit under the tax regime, entities are permitted to calculate tax
depreciation for certain mining assets using the market value of the assets as of a particular
date as the ‘starting base allowance’, rather than the cost or carrying amount of the assets.
If there is insufficient profit against which the annual tax depreciation can be used, it is
carried forward and is able to be used as a deduction against taxable profit in future years.
continued...

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...continued
The Committee noted that the starting base allowance, including the part that is attributable
to the market value uplift, is attributed to the related assets under the tax regime and will
become the basis for depreciation expense for tax purposes. Consequently, the market
value uplift forms part of the related asset’s ‘tax base’, as defined in paragraph 5 of IAS 12.
The Committee observed that IAS 12 requires an entity to reflect an adjustment to the tax
base of an asset that is due to an increase in the deductions available as a deductible
temporary difference. Accordingly, the Committee noted that a deferred tax asset should be
recognised to the extent that it meets the recognition criteria in paragraph 24 of IAS 12.
The Committee considered that, in the light of its analysis of the existing requirements of
IAS 12, an interpretation was not necessary and consequently decided not to add this issue
to its agenda.]

8 The tax base of a liability is its carrying amount, less any amount that will be
deductible for tax purposes in respect of that liability in future periods. In the
case of revenue which is received in advance, the tax base of the resulting
liability is its carrying amount, less any amount of the revenue that will not
be taxable in future periods.

Examples
1 Current liabilities include accrued expenses with a carrying amount of
100. The related expense will be deducted for tax purposes on a cash
basis. The tax base of the accrued expenses is nil.
2 Current liabilities include interest revenue received in advance, with a
carrying amount of 100. The related interest revenue was taxed on a
cash basis. The tax base of the interest received in advance is nil.
3 Current liabilities include accrued expenses with a carrying amount of
100. The related expense has already been deducted for tax purposes. The
tax base of the accrued expenses is 100.
4 Current liabilities include accrued fines and penalties with a carrying
amount of 100. Fines and penalties are not deductible for tax purposes.
The tax base of the accrued fines and penalties is 100.(a)
5 A loan payable has a carrying amount of 100. The repayment of the loan
will have no tax consequences. The tax base of the loan is 100.

(a) Under this analysis, there is no deductible temporary difference. An alternative

analysis is that the accrued fines and penalties payable have a tax base of nil and
that a tax rate of nil is applied to the resulting deductible temporary difference of
100. Under both analyses, there is no deferred tax asset.

9 Some items have a tax base but are not recognised as assets and liabilities in
the statement of financial position. For example, research costs are recognised
as an expense in determining accounting profit in the period in which they
are incurred [Refer: IAS 38 paragraphs 54–56] but may not be permitted as a
deduction in determining taxable profit (tax loss) until a later period. The
difference between the tax base of the research costs, being the amount the
taxation authorities will permit as a deduction in future periods, and the
carrying amount of nil is a deductible temporary difference that results in a
deferred tax asset.
[Refer: Illustrative Examples Part B paragraph 5]

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10 Where the tax base of an asset or liability is not immediately apparent, it is

helpful to consider the fundamental principle upon which this Standard is
based: that an entity shall, with certain limited exceptions, recognise a
deferred tax liability (asset) whenever recovery or settlement of the carrying
amount of an asset or liability would make future tax payments larger
(smaller) than they would be if such recovery or settlement were to have no
tax consequences. Example C following paragraph 51A illustrates
circumstances when it may be helpful to consider this fundamental principle,
for example, when the tax base of an asset or liability depends on the expected
manner of recovery or settlement.

11 In consolidated financial statements, temporary differences are determined by

comparing the carrying amounts of assets and liabilities in the consolidated
financial statements with the appropriate tax baseE6. The tax base is
determined by reference to a consolidated tax return in those jurisdictions in
which such a return is filed. In other jurisdictions, the tax base is determined
by reference to the tax returns of each entity in the group.E7

E6 [IFRIC® Update, July 2014, Agenda Decision, ‘IAS 12 Income Taxes—recognition of

deferred tax for a single asset in a corporate wrapper’
The Interpretations Committee received a request to clarify the accounting for deferred tax
in the consolidated financial statements of the parent, when a subsidiary has only one asset
within it (the asset inside) and the parent expects to recover the carrying amount of the
asset inside by selling the shares in the subsidiary (the shares).
The Interpretations Committee noted that:
(a) paragraph 11 of IAS 12 requires the entity to determine temporary differences in the
consolidated financial statements by comparing the carrying amounts of assets and
liabilities in the consolidated financial statements with the appropriate tax base. In the
case of an asset or a liability of a subsidiary that files separate tax returns, this is the
amount that will be taxable or deductible on the recovery (settlement) of the asset
(liability) in the tax returns of the subsidiary.
(b) the requirement in paragraph 11 of IAS 12 is complemented by the requirement in
paragraph 38 of IAS 12 to determine the temporary difference related to the shares held
by the parent in the subsidiary by comparing the parent’s share of the net assets of the
subsidiary in the consolidated financial statements, including the carrying amount of
goodwill, with the tax base of the shares for purposes of the parent’s tax returns.
The Interpretations Committee also noted that these paragraphs require a parent to
recognise both the deferred tax related to the asset inside and the deferred tax related to the
shares, if:
(a) tax law attributes separate tax bases to the asset inside and to the shares;
(b) in the case of deferred tax assets, the related deductible temporary differences can be
utilised as specified in paragraphs 24–31 of IAS 12; and
(c) no specific exceptions in IAS 12 apply.
The Interpretations Committee noted that several concerns were raised with respect to the
current requirements in IAS 12. However, analysing and assessing these concerns would
require a broader project than the Interpretations Committee could perform on behalf of the
IASB.
Consequently, the Interpretations Committee decided not to take the issue onto its agenda
but instead to recommend to the IASB that it should analyse and assess these concerns in
its research project on Income Taxes.]

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E7 [IFRIC® Update, May 2014, Agenda Decision, ‘IAS 12 Income Taxes—Impact of an internal
reorganisation on deferred tax amounts related to goodwill’
The Interpretations Committee received a request for guidance on the calculation of
deferred tax following an internal reorganisation of an entity. The submitter describes a
situation in which an entity (Entity H) recognised goodwill that had resulted from the
acquisition of a group of assets (Business C) that meets the definition of a business
in IFRS 3 Business Combinations. Entity H subsequently recorded a deferred tax liability
relating to goodwill deducted for tax purposes. Against this background, Entity H effects an
internal reorganisation in which:
(a) Entity H set up a new wholly-owned subsidiary (Subsidiary A);
(b) Entity H transfers Business C, including the related (accounting) goodwill to Subsidiary
A; however,
(c) for tax purposes, the (tax) goodwill is retained by Entity H and not transferred to
Subsidiary A.
The submitter asked how Entity H should calculate deferred tax following this internal
reorganisation transaction in its consolidated financial statements in accordance with
IAS 12.
The Interpretations Committee noted that when entities in the same consolidated group file
separate tax returns, separate temporary differences will arise in those entities in
accordance with paragraph 11 of IAS 12. Consequently, the Interpretations Committee noted
that when an entity prepares its consolidated financial statements, deferred tax balances
would be determined separately for those temporary differences, using the applicable tax
rates for each entity’s tax jurisdiction.
The Interpretations Committee also noted that when calculating the deferred tax amount for
the consolidated financial statements:
(a) the amount used as the carrying amount by the ‘receiving’ entity (in this case,
Subsidiary A that receives the (accounting) goodwill) for an asset or a liability is the
amount recognised in the consolidated financial statements; and
(b) the assessment of whether an asset or a liability is being recognised for the first time
for the purpose of applying the initial recognition exception described in paragraphs 15
and 24 of IAS 12 is made from the perspective of the consolidated financial statements.
The Interpretations Committee noted that transferring the goodwill to Subsidiary A would
not meet the initial recognition exception described in paragraphs 15 and 24 of IAS 12 in the
consolidated financial statements. Consequently, it noted that deferred tax would be
recognised in the consolidated financial statements for any temporary differences arising in
each separate entity by using the applicable tax rates for each entity’s tax jurisdiction
(subject to meeting the recoverability criteria for recognising deferred tax assets described
in IAS 12).
The Interpretations Committee also noted that if there is a so-called ‘outside basis
difference’ (ie a temporary difference between the carrying amount of the investment in
Subsidiary A and the tax base of the investment) in the consolidated financial statements,
deferred tax for such a temporary difference would also be recognised subject to the
limitations and exceptions applying to the recognition of a deferred tax asset (in accordance
with paragraph 44 of IAS 12) and a deferred tax liability (in accordance with paragraph 39 of
IAS 12).
The Interpretations Committee also noted that transferring assets between the entities in the
consolidated group would affect the consolidated financial statements in terms of
recognition, measurement and presentation of deferred tax, if the transfer affects the tax
base of assets or liabilities, or the tax rate applicable to the recovery or settlement of those
continued...

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...continued
assets or liabilities. The Interpretations Committee also noted that such a transfer could
also affect:
(a) the recoverability of any related deductible temporary differences and thereby affect the
recognition of deferred tax assets; and
(b) the extent to which deferred tax assets and liabilities of different entities in the group
are offset in the consolidated financial statements.
The Interpretations Committee considered that, in the light of its analysis, the existing IFRS
requirements and guidance were sufficient and, therefore, an Interpretation was not
necessary. Consequently, the Interpretations Committee decided not to add this issue to its
agenda.]

Recognition of current tax liabilities and current tax assets

12 Current tax for current and prior periods shall, to the extent unpaid, be
recognised as a liability. If the amount already paid in respect of current
and prior periods exceeds the amount due for those periods, the excess
shall be recognised as an assetE8.

E8 [IFRIC® Update, July 2014, Agenda Decision, ‘IAS 12 Income Taxes—recognition of current
income tax on uncertain tax position’
The Interpretations Committee received a request to clarify the recognition of a tax asset in
the situation in which tax laws require an entity to make an immediate payment when a tax
examination results in an additional charge, even if the entity intends to appeal against the
additional charge. In the situation described by the submitter, the entity expects, but is not
certain, to recover some or all of the amount paid. The Interpretations Committee was
asked to clarify whether IAS 12 is applied to determine whether to recognise an asset for the
payment, or whether the guidance in IAS 37 Provisions, Contingent Liabilities and
Contingent Assets should be applied.
The Interpretations Committee noted that:
(a) paragraph 12 of IAS 12 provides guidance on the recognition of current tax assets and
current tax liabilities. In particular, it states that: (i) current tax for current and prior
periods shall, to the extent unpaid, be recognised as a liability; and (ii) if the amount
already paid in respect of current and prior periods exceeds the amount due for those
periods, the excess shall be recognised as an asset.
(b) in the specific fact pattern described in the submission, an asset is recognised if the
amount of cash paid (which is a certain amount) exceeds the amount of tax expected to
be due (which is an uncertain amount).
(c) the timing of payment should not affect the amount of current tax expense recognised.
The Interpretations Committee understood that the reference to IAS 37 in paragraph 88 of
IAS 12 in respect of tax-related contingent liabilities and contingent assets may have been
understood by some to mean that IAS 37 applied to the recognition of such items. However,
the Interpretations Committee noted that paragraph 88 of IAS 12 provides guidance only on
disclosures required for such items, and that IAS 12, not IAS 37, provides the relevant
guidance on recognition, as described above.
On the basis of this analysis, the Interpretations Committee noted that sufficient guidance
exists. Consequently, the Interpretations Committee concluded that the agenda criteria are
not met and decided to remove from its agenda the issue of how current income tax, the
amount of which is uncertain, is recognised.]

13 The benefit relating to a tax loss that can be carried back to recover
current tax of a previous period shall be recognised as an asset.

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14 When a tax loss is used to recover current tax of a previous period, an entity
recognises the benefit as an asset in the period in which the tax loss occurs
because it is probable that the benefit will flow to the entity and the benefit
can be reliably measured.
[Refer: Illustrative Examples: Illustrative computations and presentation example 1]

Recognition of deferred tax liabilities and deferred tax assets

Taxable temporary differences

[Refer:
Illustrative Examples Part A paragraphs 1–18
Illustrative Examples: Illustrative computations and presentation examples 1–4]

15 A deferred tax liability shall be recognised for all taxable temporary

differences, except to the extent that the deferred tax liability arises
from:E9

(a) the initial recognition of goodwill; or

[Refer:
paragraphs 21–21B and 66–68
IFRS 3 paragraph 32]

(b) the initial recognition of an assetE10 or liability in a transaction

which:

(i) is not a business combination; and

(ii) at the time of the transaction, affects neither accounting

profit nor taxable profit (tax loss).

However, for taxable temporary differences associated with investments in

subsidiaries, branches and associates, and interests in joint arrangements,
a deferred tax liability shall be recognised in accordance
with paragraph 39.

E9 [IFRIC® Update, June 2005, Agenda Decision, ‘IAS 12 Deferred tax relating to finance
leases’
The IFRIC considered the treatment of deferred tax relating to assets and liabilities arising
from finance leases.
While noting that there is diversity in practice in applying the requirements of IAS 12 to
assets and liabilities arising from finance leases, the IFRIC agreed not to develop any
guidance because the issue falls directly within the scope of the Board’s short-term
convergence project on income taxes with the FASB.]

E10 [IFRIC® Update, March 2017, Agenda Decision, ‘IAS 12 Income Taxes—Recognition of
deferred taxes when acquiring a single-asset entity that is not a business’
The Committee received a submission questioning how, in its consolidated financial
statements, an entity accounts for a transaction in which it acquires all the shares of
another entity that has an investment property as its only asset. In the fact pattern
submitted, the acquiree had recognised in its statement of financial position a deferred tax
continued...

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...continued
liability arising from measuring the investment property at fair value. The amount paid for
the shares is less than the fair value of the investment property because of the associated
deferred tax liability. The transaction described in the submission does not meet the
definition of a business combination in IFRS 3 Business Combinations because the acquired
entity is not a business. The acquiring entity applies the fair value model
in IAS 40 Investment Property. The submitter asked whether the requirements in
paragraph 15(b) of IAS 12 permit the acquiring entity to recognise a deferred tax liability on
initial recognition of the transaction. If this is not the case, the submitter asked the
Committee to consider whether the requirements in paragraph 15(b) of IAS 12 should be
amended so that, in these circumstances, the acquiring entity would not recognise a gain on
measuring the investment property at fair value immediately after initial recognition of the
transaction.
The Committee noted that:
a. because the transaction is not a business combination, paragraph 2(b) of IFRS 3
requires the acquiring entity, in its consolidated financial statements, to allocate the
purchase price to the assets acquired and liabilities assumed; and
b. paragraph 15(b) of IAS 12 says that an entity does not recognise a deferred tax liability
for taxable temporary differences that arise from the initial recognition of an asset or
liability in a transaction that is not a business combination and that, at the time of the
transaction, affects neither accounting profit or loss nor taxable profit (tax loss).
Accordingly, on acquisition, the acquiring entity recognises only the investment property
and not a deferred tax liability in its consolidated financial statements. The acquiring entity
therefore allocates the entire purchase price to the investment property.
The Committee concluded that the requirements in IFRS Standards provide an adequate
basis for an entity to determine how to account for the transaction. The Committee also
concluded that any reconsideration of the initial recognition exception in paragraph 15(b) of
IAS 12 is something that would require a Board-level project. Consequently, the Committee
decided not to add this matter to its standard-setting agenda.
The Committee noted that the Board had recently considered whether to add a project on
IAS 12 to the Board’s agenda but had decided not to do so. Consequently, the Committee did
not recommend that the Board consider adding a project to its agenda on this topic.]

16 It is inherent in the recognition of an asset that its carrying amount will be

recovered in the form of economic benefits that flow to the entity in future
periods. When the carrying amount of the asset exceeds its tax base, the
amount of taxable economic benefits will exceed the amount that will be
allowed as a deduction for tax purposes. This difference is a taxable temporary
difference and the obligation to pay the resulting income taxes
[Refer: paragraph 2] in future periods is a deferred tax liability. As the entity
recovers the carrying amount of the asset, the taxable temporary difference
will reverse and the entity will have taxable profit. This makes it probable that
economic benefits will flow from the entity in the form of tax payments.
Therefore, this Standard requires the recognition of all deferred tax liabilities,
except in certain circumstances described in paragraphs 15 and 39.

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Example
An asset which cost 150 has a carrying amount of 100. Cumulative
depreciation for tax purposes is 90 and the tax rate [Refer: paragraphs 47–52A]
is 25%.

The tax base of the asset is 60 (cost of 150 less cumulative tax depreciation of 90).
To recover the carrying amount of 100, the entity must earn taxable income of 100, but
will only be able to deduct tax depreciation of 60. Consequently, the entity will pay
income taxes [Refer: paragraph 2] of 10 (40 at 25%) when it recovers the carrying
amount of the asset. The difference between the carrying amount of 100 and the tax
base of 60 is a taxable temporary difference of 40. Therefore, the entity recognises a
deferred tax liability of 10 (40 at 25%) representing the income taxes that it will pay
when it recovers the carrying amount of the asset.

17 Some temporary differences arise when income or expense is included in

accounting profit in one period but is included in taxable profit in a different
period. Such temporary differences are often described as timing differences.
The following are examples of temporary differences of this kind which are
taxable temporary differences and which therefore result in deferred tax
liabilities:

(a) interest revenue is included in accounting profit on a time proportion

basis but may, in some jurisdictions, be included in taxable profit
when cash is collected. The tax base of any receivable recognised in the
statement of financial position with respect to such revenues is nil
because the revenues do not affect taxable profit until cash is collected;

(b) depreciation used in determining taxable profit (tax loss) may differ
from that used in determining accounting profit. The temporary
difference is the difference between the carrying amount of the asset
and its tax base which is the original cost of the asset less all
deductions in respect of that asset permitted by the taxation
authorities in determining taxable profit of the current and prior
periods. A taxable temporary difference arises, and results in a
deferred tax liability, when tax depreciation is accelerated (if tax
depreciation is less rapid than accounting depreciation, a deductible
temporary difference arises, and results in a deferred tax asset); and

(c) development costs may be capitalised [Refer: IAS 38 paragraphs 57–67]

and amortised over future periods in determining accounting profit
but deducted in determining taxable profit in the period in which they
are incurred. Such development costs have a tax base of nil as they
have already been deducted from taxable profit. The temporary
difference is the difference between the carrying amount of the
development costs and their tax base of nil.

18 Temporary differences also arise when:

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(a) the identifiable assets acquired and liabilities assumed in a business

combination are recognised at their fair values in accordance with
IFRS 3 Business Combinations, [Refer: IFRS 3 paragraphs 10–31] but no
equivalent adjustment is made for tax purposes (see paragraph 19);

(b) assets are revalued and no equivalent adjustment is made for tax
purposes (see paragraph 20);

(c) goodwill arises in a business combination [Refer: IFRS 3 paragraph 32]

(see paragraph 21);

(d) the tax base of an asset or liability on initial recognition differs from
its initial carrying amount, for example when an entity benefits from
non‑taxable government grants related to assets [Refer: IAS 20
paragraph 20] (see paragraphs 22 and 33); or

(e) the carrying amount of investments in subsidiaries, branches and

associates or interests in joint arrangements becomes different from
the tax base of the investment or interest (see paragraphs 38–45).

[Note: there are more examples of temporary differences that are not timing
differences in the Illustrative examples]

Business combinations
[Refer:
Illustrative Examples Part A paragraph 12
Illustrative Examples Part B paragraph 9
Illustrative Examples: Illustrative computations and presentation example 3]

19 With limited exceptions, the identifiable assets acquired and liabilities

assumed in a business combination are recognised at their fair values at the
acquisition date. [Refer: IFRS 3 paragraphs 10–31] Temporary differences arise
when the tax bases of the identifiable assets acquired and liabilities assumed
are not affected by the business combination or are affected differently. For
example, when the carrying amount of an asset is increased to fair value but
the tax base of the asset remains at cost to the previous owner, a taxable
temporary difference arises which results in a deferred tax liability. The
resulting deferred tax liability affects goodwill (see paragraph 66).

Assets carried at fair value

[Refer:
Illustrative Examples Part A paragraphs 10 and 11
Illustrative Examples: Illustrative computations and presentation examples 2 and 7]

20 IFRSs permit or require certain assets to be carried at fair value or to be

revalued (see, for example, IAS 16 Property, Plant and Equipment, [Refer: IAS 16
paragraph 29] IAS 38 Intangible Assets, [Refer: IAS 38 paragraph 72] IAS 40
Investment Property, [Refer: IAS 40 paragraph 30] IFRS 9 Financial Instruments
[Refer: IFRS 9 paragraph 5.2.1] and IFRS 16 Leases [Refer: IFRS 16 paragraphs 34 and
35]). In some jurisdictions, the revaluation or other restatement of an asset to
fair value affects taxable profit (tax loss) for the current period. As a result, the
tax base of the asset is adjusted and no temporary difference arises. In other

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jurisdictions, the revaluation or restatement of an asset does not affect taxable

profit in the period of the revaluation or restatement and, consequently, the
tax base of the asset is not adjusted. Nevertheless, the future recovery of the
carrying amount will result in a taxable flow of economic benefits to the
entity and the amount that will be deductible for tax purposes will differ from
the amount of those economic benefits. The difference between the carrying
amount of a revalued asset and its tax base is a temporary difference and gives
rise to a deferred tax liability or asset. This is true even if:

(a) the entity does not intend to dispose of the asset. In such cases, the
revalued carrying amount of the asset will be recovered through use
and this will generate taxable income which exceeds the depreciation
that will be allowable for tax purposes in future periods; or

(b) tax on capital gains is deferred if the proceeds of the disposal of the
asset are invested in similar assets. In such cases, the tax will
ultimately become payable on sale or use of the similar assets.

Goodwill
[Refer:
Illustrative Examples Part A paragraph 13
Illustrative Examples: Illustrative computations and presentation example 3]

21 Goodwill arising in a business combination is measured as the excess of (a)

over (b) below: [Refer: IFRS 3 paragraph 32]

(a) the aggregate of:

(i) the consideration transferred measured in accordance with

IFRS 3, which generally requires acquisition‑date fair value;

(ii) the amount of any non‑controlling interest in the acquiree

recognised in accordance with IFRS 3; and

(iii) in a business combination achieved in stages, the

acquisition‑date fair value of the acquirer’s previously held
equity interest in the acquiree.

(b) the net of the acquisition‑date amounts of the identifiable assets

acquired and liabilities assumed measured in accordance with IFRS 3.

Many taxation authorities do not allow reductions in the carrying amount of

goodwill as a deductible expense in determining taxable profit. Moreover, in
such jurisdictions, the cost of goodwill is often not deductible when a
subsidiary disposes of its underlying business. In such jurisdictions, goodwill
has a tax base of nil. Any difference between the carrying amount of goodwill
and its tax base of nil is a taxable temporary difference. However, this
Standard does not permit the recognition of the resulting deferred tax liability
because goodwill is measured as a residual and the recognition of the deferred
tax liability would increase the carrying amount of goodwill.

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21A Subsequent reductions in a deferred tax liability that is unrecognised because

it arises from the initial recognition of goodwill are also regarded as arising
from the initial recognition of goodwill and are therefore not recognised
under paragraph 15(a). For example, if in a business combination an entity
recognises goodwill of CU100 that has a tax base of nil, paragraph 15(a)
prohibits the entity from recognising the resulting deferred tax liability. If the
entity subsequently recognises an impairment loss of CU20 for that goodwill,
the amount of the taxable temporary difference relating to the goodwill is
reduced from CU100 to CU80, with a resulting decrease in the value of the
unrecognised deferred tax liability. That decrease in the value of the
unrecognised deferred tax liability is also regarded as relating to the initial
recognition of the goodwill and is therefore prohibited from being recognised
under paragraph 15(a).

21B Deferred tax liabilities for taxable temporary differences relating to goodwill
are, however, recognised to the extent they do not arise from the initial
recognition of goodwill. For example, if in a business combination an entity
recognises goodwill of CU100 that is deductible for tax purposes at a rate of
20 per cent per year starting in the year of acquisition, the tax base of the
goodwill is CU100 on initial recognition and CU80 at the end of the year of
acquisition. If the carrying amount of goodwill at the end of the year of
acquisition remains unchanged at CU100, a taxable temporary difference of
CU20 arises at the end of that year. Because that taxable temporary difference
does not relate to the initial recognition of the goodwill, the resulting deferred
tax liability is recognised.

Initial recognition of an asset or liability

22 A temporary difference may arise on initial recognition of an asset or liability,
for example if part or all of the cost of an asset will not be deductible for tax
purposes. The method of accounting for such a temporary difference depends
on the nature of the transaction that led to the initial recognition of the asset
or liability:

(a) in a business combination, an entity recognises any deferred tax

liability or asset and this affects the amount of goodwill or bargain
purchase gain it recognises (see paragraph 19);

(b) if the transaction affects either accounting profit or taxable profit, an

entity recognises any deferred tax liability or asset and recognises the
resulting deferred tax expense or income in profit or loss (see
paragraph 59);

(c) if the transaction is not a business combination, and affects neither

accounting profit nor taxable profit, an entity would, in the absence of
the exemption provided by paragraphs 15 and 24, recognise the
resulting deferred tax liability or asset and adjust the carrying amount
of the asset or liability by the same amount. Such adjustments would
make the financial statements less transparent. Therefore, this
Standard does not permit an entity to recognise the resulting deferred
tax liability or asset, either on initial recognition or subsequently (see
example below). Furthermore, an entity does not recognise subsequent

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changes in the unrecognised deferred tax liability or asset as the asset

is depreciated.

Example illustrating paragraph 22(c)

An entity intends to use an asset which cost 1,000 throughout its useful life
of five years and then dispose of it for a residual value of nil. The tax rate
[Refer: paragraphs 47–52A] is 40%. Depreciation of the asset is not deductible
for tax purposes. On disposal, any capital gain would not be taxable and any
capital loss would not be deductible.

As it recovers the carrying amount of the asset, the entity will earn taxable income of
1,000 and pay tax of 400. The entity does not recognise the resulting deferred tax
liability of 400 because it results from the initial recognition of the asset.

In the following year, the carrying amount of the asset is 800. In earning taxable
income of 800, the entity will pay tax of 320. The entity does not recognise the deferred
tax liability of 320 because it results from the initial recognition of the asset.

23 In accordance with IAS 32 Financial Instruments: Presentation the issuer of a

compound financial instrument (for example, a convertible bond) classifies
the instrument’s liability component as a liability and the equity component
as equity. [Refer: IAS 32 paragraphs 28–32] In some jurisdictions, the tax base of
the liability component on initial recognition is equal to the initial carrying
amount of the sum of the liability and equity components. The resulting
taxable temporary difference arises from the initial recognition of the equity
component separately from the liability component. Therefore, the exception
set out in paragraph 15(b) does not apply. Consequently, an entity recognises
the resulting deferred tax liability. In accordance with paragraph 61A, the
deferred tax is charged directly to the carrying amount of the equity
component. In accordance with paragraph 58, subsequent changes in the
deferred tax liability are recognised in profit or loss as deferred tax expense
(income).
[Refer:
Illustrative Examples Part A paragraph 9
Illustrative Examples: Illustrative computations and presentation example 4]

Deductible temporary differences

[Refer:
Illustrative Examples Part B paragraphs 1–13
Illustrative Examples: Illustrative computations and presentation examples 2,
3, 5, 6 and 7]

24 A deferred tax asset shall be recognised for all deductible temporary

differences to the extent that it is probable that taxable profit will be
available against which the deductible temporary difference can be
utilised, [Refer: paragraphs 27–31] 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; and

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(b) at the time of the transaction, affects neither accounting profit nor
taxable profit (tax loss).

However, for deductible temporary differences associated with investments

in subsidiaries, branches and associates, and interests in joint
arrangements, a deferred tax asset shall be recognised in accordance with
paragraph 44.

25 It is inherent in the recognition of a liability that the carrying amount will be

settled in future periods through an outflow from the entity of resources
embodying economic benefits. When resources flow from the entity, part or
all of their amounts may be deductible in determining taxable profit of a
period later than the period in which the liability is recognised. In such cases,
a temporary difference exists between the carrying amount of the liability and
its tax base. Accordingly, a deferred tax asset arises in respect of the income
taxes [Refer: paragraph 2] that will be recoverable in the future periods when
that part of the liability is allowed as a deduction in determining taxable
profit. Similarly, if the carrying amount of an asset is less than its tax base,
the difference gives rise to a deferred tax asset in respect of the income taxes
that will be recoverable in future periods.

Example
An entity recognises a liability of 100 for accrued product warranty costs.
For tax purposes, the product warranty costs will not be deductible until the
entity pays claims. The tax rate [Refer: paragraphs 47–52A] is 25%.

The tax base of the liability is nil (carrying amount of 100, less the amount that will be
deductible for tax purposes in respect of that liability in future periods). In settling the
liability for its carrying amount, the entity will reduce its future taxable profit by an
amount of 100 and, consequently, reduce its future tax payments by 25 (100 at 25%).
The difference between the carrying amount of 100 and the tax base of nil is a
deductible temporary difference of 100. Therefore, the entity recognises a deferred tax
asset of 25 (100 at 25%), provided that it is probable [Refer: paragraphs 27–31] that
the entity will earn sufficient taxable profit in future periods to benefit from a reduction
in tax payments.

26 The following are examples of deductible temporary differences that result

in deferred tax assets:

(a) retirement benefit costs may be deducted in determining accounting

profit as service is provided by the employee, [Refer: IAS 19] but
deducted in determining taxable profit either when contributions are
paid to a fund by the entity or when retirement benefits are paid by
the entity. A temporary difference exists between the carrying amount
of the liability and its tax base; the tax base of the liability is usually
nil. Such a deductible temporary difference results in a deferred tax
asset as economic benefits will flow to the entity in the form of a
deduction from taxable profits when contributions or retirement
benefits are paid;

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(b) research costs are recognised as an expense in determining accounting

profit in the period in which they are incurred [Refer: IAS 38
paragraphs 54–56] but may not be permitted as a deduction in
determining taxable profit (tax loss) until a later period. The difference
between the tax base of the research costs, being the amount the
taxation authorities will permit as a deduction in future periods, and
the carrying amount of nil is a deductible temporary difference that
results in a deferred tax asset;

(c) with limited exceptions, an entity recognises the identifiable assets

acquired and liabilities assumed in a business combination at their fair
values at the acquisition date. [Refer: IFRS 3 paragraph 18] When a
liability assumed is recognised at the acquisition date but the related
costs are not deducted in determining taxable profits until a later
period, a deductible temporary difference arises which results in a
deferred tax asset. A deferred tax asset also arises when the fair value
of an identifiable asset acquired is less than its tax base. In both cases,
the resulting deferred tax asset affects goodwill (see paragraph 66); and

(d) certain assets may be carried at fair value, or may be revalued, without
an equivalent adjustment being made for tax purposes
(see paragraph 20). A deductible temporary difference arises if the tax
base of the asset exceeds its carrying amount.

Example illustrating paragraph 26(d)

[Refer:
Basis for Conclusions paragraphs BC39–BC45 and, for background
information, BC37 and BC38(a)
Illustrative Examples: Illustrative computations and presentation example 7]

Identification of a deductible temporary difference at the end of Year 2:

Entity A purchases for CU1,000, at the beginning of Year 1, a debt

instrument with a nominal value of CU1,000 payable on maturity in 5 years
with an interest rate of 2% payable at the end of each year. The effective
interest rate is 2%. The debt instrument is measured at fair value.
At the end of Year 2, the fair value of the debt instrument has decreased to
CU918 as a result of an increase in market interest rates to 5%. It is probable
that Entity A will collect all the contractual cash flows if it continues to hold
the debt instrument.
Any gains (losses) on the debt instrument are taxable (deductible) only when
realised. The gains (losses) arising on the sale or maturity of the debt
instrument are calculated for tax purposes as the difference between the
amount collected and the original cost of the debt instrument.

continued...

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...continued

Example illustrating paragraph 26(d)

Accordingly, the tax base of the debt instrument is its original cost.

The difference between the carrying amount of the debt instrument in Entity A’s
statement of financial position of CU918 and its tax base of CU1,000 gives rise to a
deductible temporary difference of CU82 at the end of Year 2 (see paragraphs 20 and
26(d)), irrespective of whether Entity A expects to recover the carrying amount of the
debt instrument by sale or by use, ie by holding it and collecting contractual cash flows,
or a combination of both.
This is because deductible temporary differences are differences between the carrying
amount of an asset or liability in the statement of financial position and its tax base
that will result in amounts that are deductible in determining taxable profit (tax loss) of
future periods, when the carrying amount of the asset or liability is recovered or settled
(see paragraph 5). Entity A obtains a deduction equivalent to the tax base of the asset of
CU1,000 in determining taxable profit (tax loss) either on sale or on maturity.

27 The reversal of deductible temporary differences results in deductions in

determining taxable profits of future periods. However, economic benefits in
the form of reductions in tax payments will flow to the entity only if it earns
sufficient taxable profits against which the deductions can be offset.
Therefore, an entity recognises deferred tax assets only when it is probable
[Refer: paragraphs 28–31] that taxable profits will be available
[Refer: paragraph 27A] against which the deductible temporary differences can
be utilised.

27A When an entity assesses whether taxable profits will be available against
which it can utilise a deductible temporary difference, it considers whether
tax law restricts the sources of taxable profits against which it may make
deductions on the reversal of that deductible temporary difference. If tax law
imposes no such restrictions, an entity assesses a deductible temporary
difference in combination with all of its other deductible temporary
differences. However, if tax law restricts the utilisation of losses to deduction
against income of a specific type, a deductible temporary difference is assessed
in combination only with other deductible temporary differences of the
appropriate type.
[Refer:
Basis for Conclusions paragraphs BC57–BC59 and, for background
information, BC37 and BC38(d)
Illustrative Examples: Illustrative computations and presentation example 7]

28 It is probable that taxable profit will be available against which a deductible

temporary difference can be utilised when there are sufficient taxable
temporary differences relating to the same taxation authority and the same
taxable entity which are expected to reverse:

(a) in the same period as the expected reversal of the deductible

temporary difference; or

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(b) in periods into which a tax loss arising from the deferred tax asset can
be carried back or forward.

In such circumstances, the deferred tax asset is recognised in the period in

which the deductible temporary differences arise.E11
[Refer: Illustrative Examples: Illustrative computations and presentation example 7
(Step 1)]

E11 [IFRIC® Update, May 2014, Agenda Decision, ‘IAS 12 Income Taxes—recognition and
measurement of deferred tax assets when an entity is loss-making’
The Interpretations Committee received a request for guidance on the recognition and
measurement of deferred tax assets when an entity is loss making. The Interpretations
Committee was asked to clarify two issues:
(a) whether IAS 12 requires that a deferred tax asset is recognised for the carryforward of
unused tax losses when there are suitable reversing taxable temporary differences,
regardless of an entity’s expectations of future tax losses; and
(b) how the guidance in IAS 12 is applied when tax laws limit the extent to which tax losses
brought forward can be recovered against future taxable profits. In the tax systems
considered for the second issue, the amount of tax losses brought forward that can be
recovered in each tax year is limited to a specified percentage of the taxable profits of
that year.
The Interpretations Committee noted that according to paragraphs 28 and 35 of IAS 12:
(a) a deferred tax asset is recognised for the carryforward of unused tax losses to the extent
of the existing taxable temporary differences, of an appropriate type, that reverse in an
appropriate period. The reversal of those taxable temporary differences enables the
utilisation of the unused tax losses and justifies the recognition of deferred tax assets.
Consequently, future tax losses are not considered.
(b) when tax laws limit the extent to which unused tax losses can be recovered against
future taxable profits in each year, the amount of deferred tax assets recognised from
unused tax losses as a result of suitable existing taxable temporary differences is
restricted as specified by the tax law. This is because when the suitable taxable
temporary differences reverse, the amount of tax losses that can be utilised by that
reversal is reduced as specified by the tax law. Also, in this case future tax losses are
not considered.
(c) in both cases, if the unused tax losses exceed the amount of suitable existing taxable
temporary differences (after taking into account any restrictions), an additional deferred
tax asset is recognised only if the requirements in paragraphs 29 and 36 of IAS 12 are
met (ie to the extent that it is probable that the entity will have appropriate future
taxable profit, or to the extent that tax planning opportunities are available to the entity
that will create appropriate taxable profit).
On the basis of this analysis, the Interpretations Committee concluded that neither an
Interpretation nor an amendment to the Standard was needed and consequently decided not
to add these issues to its agenda.]

29 When there are insufficient taxable temporary differences relating to the

same taxation authority and the same taxable entity, the deferred tax asset is
recognised to the extent that:

(a) it is probable that the entity will have sufficient taxable profit relating
to the same taxation authority and the same taxable entity in the same
period as the reversal of the deductible temporary difference (or in the
periods into which a tax loss arising from the deferred tax asset can be

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carried back or forward). In evaluating whether it will have sufficient

taxable profit in future periods, an entity:

(i) compares the deductible temporary differences with future

taxable profit that excludes tax deductions resulting from the
reversal of those deductible temporary differences. This
comparison shows the extent to which the future taxable profit
is sufficient for the entity to deduct the amounts resulting from
the reversal of those deductible temporary differences;
[Refer: Basis for Conclusions paragraphs BC55 and BC56 and, for
background information, BC37 and BC38(c), and Illustrative Examples:
Illustrative computations and presentation example 7 (Step 2)] and

(ii) ignores taxable amounts arising from deductible temporary

differences that are expected to originate in future periods,
because the deferred tax asset arising from these deductible
temporary differences will itself require future taxable profit in
order to be utilised; or

(b) tax planning opportunities are available to the entity that will create
taxable profit in appropriate periods.

29A The estimate of probable future taxable profit may include the recovery of
some of an entity’s assets for more than their carrying amount if there is
sufficient evidence that it is probable that the entity will achieve this. For
example, when an asset is measured at fair value, the entity shall consider
whether there is sufficient evidence to conclude that it is probable that the
entity will recover the asset for more than its carrying amount. This may be
the case, for example, when an entity expects to hold a fixed-rate debt
instrument and collect the contractual cash flows.
[Refer:
Example illustrating paragraph 26(d)
Basis for Conclusions paragraphs BC46–BC54 and, for background information, BC37
and BC38(b)
Illustrative Examples: Illustrative computations and presentation example 7 (Step 2)]

30 Tax planning opportunities are actions that the entity would take in order to
create or increase taxable income in a particular period before the expiry of a
tax loss or tax credit carryforward. For example, in some jurisdictions, taxable
profit may be created or increased by:

(a) electing to have interest income taxed on either a received or

receivable basis;

(b) deferring the claim for certain deductions from taxable profit;

(c) selling, and perhaps leasing back, assets that have appreciated but for
which the tax base has not been adjusted to reflect such appreciation;
and

(d) selling an asset that generates non‑taxable income (such as, in some
jurisdictions, a government bond) in order to purchase another
investment that generates taxable income.

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Where tax planning opportunities advance taxable profit from a later period
to an earlier period, the utilisation of a tax loss or tax credit carryforward still
depends on the existence of future taxable profit from sources other than
future originating temporary differences.

31 When an entity has a history of recent losses, the entity considers the
guidance in paragraphs 35 and 36.

32 [Deleted]

Goodwill
32A If the carrying amount of goodwill arising in a business combination is less
than its tax base, the difference gives rise to a deferred tax asset. The deferred
tax asset arising from the initial recognition of goodwill shall be recognised as
part of the accounting for a business combination to the extent that it is
probable that taxable profit will be available against which the deductible
temporary difference could be utilised.

Initial recognition of an asset or liability

33 One case when a deferred tax asset arises on initial recognition of an asset is
when a non‑taxable government grant related to an asset is deducted in
arriving at the carrying amount of the asset [Refer: IAS 20 paragraphs 24 and 27]
but, for tax purposes, is not deducted from the asset’s depreciable amount (in
other words its tax base); the carrying amount of the asset is less than its tax
base and this gives rise to a deductible temporary difference. Government
grants may also be set up as deferred income in which case the difference
between the deferred income and its tax base of nil is a deductible temporary
difference. Whichever method of presentation an entity adopts, the entity
does not recognise the resulting deferred tax asset, for the reason given in
paragraph 22.

Unused tax losses and unused tax credits

34 A deferred tax asset shall be recognised for the carryforward of unused tax
losses and unused tax credits to the extent that it is probableE12
[Refer: paragraphs 35 and 36] that future taxable profit will be available
against which the unused tax losses and unused tax credits can be utilised.

E12 [IFRIC® Update, June 2005, Agenda Decision, ‘IAS 12 Carryforward of unused tax losses
and tax credits’
The IFRIC considered whether to provide guidance on how to apply the probability criterion
for the recognition of deferred tax assets arising from the carryforward of unused tax losses
and unused tax credits, and in particular whether the criterion should be applied to the
amount of unused tax losses or unused tax credits taken as a whole or to portions of the
total amount.
The IFRIC decided not to develop any guidance because, in practice, the criterion is
generally applied to portions of the total amount. The IFRIC was not aware of much diversity
in practice.]

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35 The criteria for recognising deferred tax assets arising from the carryforward
of unused tax losses and tax credits are the same as the criteria for recognising
deferred tax assets arising from deductible temporary differences.
[Refer: paragraphs 27–31] However, the existence of unused tax losses is strong
evidence that future taxable profit may not be available. Therefore, when an
entity has a history of recent losses, the entity recognises a deferred tax asset
arising from unused tax losses or tax credits only to the extent that the entity
has sufficient taxable temporary differences or there is convincing other
evidence that sufficient taxable profit will be available against which the
unused tax losses or unused tax credits can be utilised by the entity. In such
circumstances, paragraph 82 requires disclosure of the amount of the deferred
tax asset and the nature of the evidence supporting its recognition.

36 An entity considers the following criteria in assessing the probability that

taxable profit will be available against which the unused tax losses or unused
tax credits can be utilised:

(a) whether the entity has sufficient taxable temporary differences

relating to the same taxation authority and the same taxable entity,
which will result in taxable amounts against which the unused tax
losses or unused tax credits can be utilised before they expire;

(b) whether it is probable that the entity will have taxable profits before
the unused tax losses or unused tax credits expire;

(c) whether the unused tax losses result from identifiable causes which
are unlikely to recur; and

(d) whether tax planning opportunities (see paragraph 30) are available to
the entity that will create taxable profit in the period in which the
unused tax losses or unused tax credits can be utilised.

To the extent that it is not probable that taxable profit will be available
against which the unused tax losses or unused tax credits can be utilised, the
deferred tax asset is not recognised.

Reassessment of unrecognised deferred tax assets

37 At the end of each reporting period, an entity reassesses unrecognised
deferred tax assets. The entity recognises a previously unrecognised deferred
tax asset to the extent that it has become probable that future taxable profit
will allow the deferred tax asset to be recovered. [Refer: paragraphs 27–31 and
34–36] For example, an improvement in trading conditions may make it more
probable that the entity will be able to generate sufficient taxable profit in the
future for the deferred tax asset to meet the recognition criteria set out in
paragraph 24 or 34. Another example is when an entity reassesses deferred tax
assets at the date of a business combination or subsequently (see paragraphs
67 and 68).

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Investments in subsidiaries, branches and associates and

interests in joint arrangements
[Refer:
Illustrative Examples Part A paragraphs 15–17
Illustrative Examples Part B paragraphs 12 and 13
Illustrative Examples: Illustrative computations and presentation example 3]

38 Temporary differences arise when the carrying amount of investments in

subsidiaries, branches and associates or interests in joint arrangements
(namely the parent or investor’s share of the net assets of the subsidiary,
branch, associate or investee, including the carrying amount of goodwill)
becomes different from the tax base (which is often cost) of the investment or
interest.E13 Such differences may arise in a number of different circumstances,
for example:

(a) the existence of undistributed profits of subsidiaries, branches,

associates and joint arrangements;

(b) changes in foreign exchange rates when a parent and its subsidiary are
based in different countries; and

(c) a reduction in the carrying amount of an investment in an associate to

its recoverable amount.

In consolidated financial statements, the temporary difference may be

different from the temporary difference associated with that investment in
the parent’s separate financial statements if the parent carries the investment
in its separate financial statements at cost or revalued amount. [Refer: IAS 27
paragraphs 9–14]

E13 [IFRIC® Update, July 2014, Agenda Decision, ‘IAS 12 Income Taxes—recognition of
deferred tax for a single asset in a corporate wrapper’
The Interpretations Committee received a request to clarify the accounting for deferred tax
in the consolidated financial statements of the parent, when a subsidiary has only one asset
within it (the asset inside) and the parent expects to recover the carrying amount of the
asset inside by selling the shares in the subsidiary (the shares).
The Interpretations Committee noted that:
(a) paragraph 11 of IAS 12 requires the entity to determine temporary differences in the
consolidated financial statements by comparing the carrying amounts of assets and
liabilities in the consolidated financial statements with the appropriate tax base. In the
case of an asset or a liability of a subsidiary that files separate tax returns, this is the
amount that will be taxable or deductible on the recovery (settlement) of the asset
(liability) in the tax returns of the subsidiary.
(b) the requirement in paragraph 11 of IAS 12 is complemented by the requirement in
paragraph 38 of IAS 12 to determine the temporary difference related to the shares held
by the parent in the subsidiary by comparing the parent’s share of the net assets of the
subsidiary in the consolidated financial statements, including the carrying amount of
goodwill, with the tax base of the shares for purposes of the parent’s tax returns.
continued...

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...continued
The Interpretations Committee also noted that these paragraphs require a parent to
recognise both the deferred tax related to the asset inside and the deferred tax related to the
shares, if:
(a) tax law attributes separate tax bases to the asset inside and to the shares;
(b) in the case of deferred tax assets, the related deductible temporary differences can be
utilised as specified in paragraphs 24–31 of IAS 12; and
(c) no specific exceptions in IAS 12 apply.
The Interpretations Committee noted that several concerns were raised with respect to the
current requirements in IAS 12. However, analysing and assessing these concerns would
require a broader project than the Interpretations Committee could perform on behalf of the
IASB.
Consequently, the Interpretations Committee decided not to take the issue onto its agenda
but instead to recommend to the IASB that it should analyse and assess these concerns in
its research project on Income Taxes.]

39 An entity shall recognise a deferred tax liability for all taxable temporary
differences associated with investments in subsidiaries, branches and
associates, and interests in joint arrangements, except to the extent that
both of the following conditions are satisfied:

(a) the parent, investor, joint venturer or joint operator is able to

control the timing of the reversal of the temporary difference; and

(b) it is probable that the temporary difference will not reverse in the
foreseeable future.E14

E14 [IFRIC® Update, July 2007, Agenda Decision, ‘IAS 12 Income Taxes—Deferred tax arising
from unremitted foreign earnings’
The IFRIC was asked to provide guidance on whether entities should recognise a deferred
tax liability in respect of temporary differences arising because foreign income is not
taxable unless remitted to the entity’s home jurisdiction. The foreign income in question did
not arise in a foreign subsidiary, associate or joint venture.
The submission referred to paragraph 39 of IAS 12 and noted that, if the foreign income
arose in a foreign subsidiary, branch, associate or interest in a joint venture and met the
conditions in IAS 12 paragraph 39(a) and (b), no deferred tax liability would be recognised.
The submission noted that IAS 12 does not include a definition of a branch. It therefore
asked for guidance on what constituted a branch. Even if the income did not arise in a
branch, the submission asked for clarity on whether the exception in paragraph 39 could be
applied to other similar foreign income by analogy.
The IFRIC noted that the Board was considering the recognition of deferred tax liabilities for
temporary differences relating to investments in subsidiaries, branches, associates and
joint ventures as part of its Income Taxes project. As part of this project, the Board had
tentatively decided to eliminate the notion of ‘branches’ from IAS 12 and to amend the
wording for the exception for subsidiaries to restrict its application. The project team had
been informed of the issue raised with the IFRIC.
Since the issue was being addressed by a Board project that was expected to be completed
in the near future, the IFRIC decided not to add the issue to its agenda.]

40 As a parent controls the dividend policy of its subsidiary, it is able to control

the timing of the reversal of temporary differences associated with that
investment (including the temporary differences arising not only from
undistributed profits but also from any foreign exchange translation

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differences [Refer: IAS 21]). Furthermore, it would often be impracticable to

determine the amount of income taxes [Refer: paragraph 2] that would be
payable when the temporary difference reverses. Therefore, when the parent
has determined that those profits will not be distributed in the foreseeable
future the parent does not recognise a deferred tax liability. The same
considerations apply to investments in branches.

41 The non‑monetary assets and liabilities of an entity are measured in its

functional currency (see IAS 21 The Effects of Changes in Foreign Exchange Rates). If
the entity’s taxable profit or tax loss (and, hence, the tax base of its
non‑monetary assets and liabilities) is determined in a different currency,
changes in the exchange rate give rise to temporary differences that result in a
recognised deferred tax liability or (subject to paragraph 24) asset. The
resulting deferred tax is charged or credited to profit or loss (see
paragraph 58).E15

E15 [IFRIC® Update, January 2016, Agenda Decision, ‘IAS 12 Income Taxes—Recognition of
deferred taxes for the effect of exchange rate changes’
The Interpretations Committee received a submission regarding the recognition of deferred
taxes when the tax bases of an entity’s non-monetary assets and liabilities are determined
in a currency that is different from its functional currency. The question is whether deferred
taxes that result from exchange rate changes on the tax bases of non-current assets are
recognised through profit or loss.
The Interpretations Committee noted that paragraph 41 of IAS 12 Income Taxes states that
when the tax base of a non-monetary asset or liability is determined in a currency that is
different from the functional currency, temporary differences arise resulting in a deferred
tax asset or liability. Such deferred tax does not arise from a transaction or event that is
recognised outside profit or loss and is therefore charged or credited to profit or loss in
accordance with paragraph 58 of IAS 12. Such deferred tax charges or credits would be
presented with other deferred taxes, instead of with foreign exchange gains or losses, in the
statement of profit or loss.
The Interpretations Committee also noted that paragraph 79 of IAS 12 requires the
disclosure of the major components of tax expense (income). The Interpretations Committee
observed that when changes in the exchange rate are the cause of a major component of the
deferred tax charge or credit, an explanation of this in accordance with paragraph 79 of
IAS 12 would help users of financial statements to understand the tax expense (income) for
the period.
In the light of existing IFRS requirements, the Interpretations Committee determined that
neither an Interpretation nor an amendment to a Standard was necessary. Consequently,
the Interpretations Committee decided not to add this issue to its agenda.]

42 An investor in an associate does not control that entity and is usually not in a
position to determine its dividend policy. Therefore, in the absence of an
agreement requiring that the profits of the associate will not be distributed in
the foreseeable future, an investor recognises a deferred tax liability arising
from taxable temporary differences associated with its investment in the
associate. In some cases, an investor may not be able to determine the amount
of tax that would be payable if it recovers the cost of its investment in an
associate, but can determine that it will equal or exceed a minimum amount.
In such cases, the deferred tax liability is measured at this amount.

© IFRS Foundation A1225

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43 The arrangement between the parties to a joint arrangement usually deals

with the distribution of the profits and identifies whether decisions on such
matters require the consent of all the parties or a group of the parties. When
the joint venturer or joint operator can control the timing of the distribution
of its share of the profits of the joint arrangement and it is probable that its
share of the profits will not be distributed in the foreseeable future, a deferred
tax liability is not recognised.

44 An entity shall recognise a deferred tax asset for all deductible temporary
differences arising from investments in subsidiaries, branches and
associates, and interests in joint arrangements, to the extent that, and only
to the extent that, it is probable that:

(a) the temporary difference will reverse in the foreseeable future; and

(b) taxable profit will be available against which the temporary

difference can be utilised.

45 In deciding whether a deferred tax asset is recognised for deductible

temporary differences associated with its investments in subsidiaries,
branches and associates, and its interests in joint arrangements, an entity
considers the guidance set out in paragraphs 28 to 31.

Measurement
[Refer: Illustrative Examples: Illustrative computations and presentation examples 1–7]

[Note: IFRIC 23 addresses how to reflect uncertainty in accounting for income taxes]

46 Current tax liabilities (assets) for the current and prior periods shall be
measured at the amount expected to be paid to (recovered from) the
taxation authorities, using the tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period.

47 Deferred tax assets and liabilities shall be measured at the tax rates that
are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.E16

E16 [IFRIC® Update, February 2002, ‘Taxes—effective rates’

The IFRIC discussed whether to address the tax rate to be used to measure deferred tax
assets and deferred tax liabilities for entities that have low effective tax rates, eg because
some income is exempt from tax. The IFRIC decided not to add this item to its agenda.]

48 Current and deferred tax assets and liabilities are usually measured using the
tax rates (and tax laws) that have been enacted. However, in some
jurisdictions, announcements of tax rates (and tax laws) by the government
have the substantive effect of actual enactment, which may follow the
announcement by a period of several months. In these circumstances, tax
assets and liabilities are measured using the announced tax rate (and tax
laws).

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49 When different tax rates apply to different levels of taxable income, deferred
tax assets and liabilities are measured using the average rates that are
expected to apply to the taxable profit (tax loss) of the periods in which the
temporary differences are expected to reverse.

50 [Deleted]

51 The measurement of deferred tax liabilities and deferred tax assets shall
reflect the tax consequences that would follow from the manner in which
the entity expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.E17,E18

E17 [IFRIC® Update, November 2005, Agenda Decision, ‘IAS 12 Income Taxes—Single asset
entities’
The IFRIC considered the application of IAS 12 to single asset entities, and whether the
expected manner of recovery of the asset should in any circumstances reflect disposal of the
entity rather than the asset.
The IFRIC decided not to add this item to its agenda because the issue fell directly within
the scope of the IASB’s Short‑term Convergence project.]

E18 [IFRIC® Update, November 2016, Agenda Decision, ‘IAS 12 Income Taxes—Expected
manner of recovery of intangible assets with indefinite useful lives’
The Interpretations Committee received a request to clarify how an entity determines the
expected manner of recovery of an intangible asset with an indefinite useful life for the
purposes of measuring deferred tax.
The Interpretations Committee noted that paragraph 51 of IAS 12 Income Taxes states that
the measurement of deferred tax liabilities and deferred tax assets reflects the tax
consequences that follow from the manner in which an entity expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
The Interpretations Committee also noted the requirements in paragraph 88 of
IAS 38 Intangible Assets regarding intangible assets with indefinite useful lives.
The Interpretations Committee observed that an intangible asset with an indefinite useful
life is not a non-depreciable asset as envisaged by paragraph 51B of IAS 12. This is
because a non-depreciable asset has an unlimited (or infinite) life, and IAS 38 explains that
indefinite does not mean infinite. Consequently, the requirements in paragraph 51B of
IAS 12 do not apply to intangible assets with an indefinite useful life.
The Interpretations Committee noted the Board’s observation about intangible assets with
indefinite useful lives when the Board amended IAS 38 in 2004. The Board observed that an
entity does not amortise an intangible asset with an indefinite useful life because there is
no foreseeable limit on the period during which it expects to consume the future economic
benefits embodied in the asset. Accordingly, amortisation over an arbitrarily determined
maximum period would not be representationally faithful. The reason for non-amortisation
of an intangible asset with an indefinite useful life is not because there is no consumption of
the future economic benefits embodied in the asset.
The Interpretations Committee observed that an entity recovers the carrying amount of an
asset in the form of economic benefits that flow to the entity in future periods, which could
be through use or sale of the asset. Accordingly, the recovery of the carrying amount of an
asset does not depend on whether the asset is amortised. Consequently, the fact that an
entity does not amortise an intangible asset with an indefinite useful life does not
necessarily mean that the entity will recover the carrying amount of that asset only through
sale and not through use.
continued...

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IAS 12

...continued
The Interpretations Committee noted that an entity applies the principle and requirements in
paragraphs 51 and 51A of IAS 12 when measuring deferred tax on an intangible asset with
an indefinite useful life. In applying these paragraphs, an entity determines its expected
manner of recovery of the carrying amount of the intangible asset with an indefinite useful
life, and reflects the tax consequences that follow from that expected manner of recovery.
The Interpretations Committee concluded that the principle and requirements in
paragraphs 51 and 51A of IAS 12 provide sufficient requirements to enable an entity to
measure deferred tax on intangible assets with indefinite useful lives.
In the light of existing requirements in IFRS Standards, the Interpretations Committee
determined that neither an IFRIC Interpretation nor an amendment to a Standard was
necessary. Consequently, the Interpretations Committee decided not to add this issue to its
agenda.]

51A In some jurisdictions, the manner in which an entity recovers (settles) the
carrying amount of an asset (liability) may affect either or both of:

(a) the tax rate applicable when the entity recovers (settles) the carrying
amount of the asset (liability); and

(b) the tax base of the asset (liability).

In such cases, an entity measures deferred tax liabilities and deferred tax
assets using the tax rate and the tax base that are consistent with the expected
manner of recovery or settlement.E19

Example A
An item of property, plant and equipment has a carrying amount of 100 and
a tax base of 60. A tax rate of 20% would apply if the item were sold and a
tax rate of 30% would apply to other income.

The entity recognises a deferred tax liability of 8 (40 at 20%) if it expects to sell the item
without further use and a deferred tax liability of 12 (40 at 30%) if it expects to retain
the item and recover its carrying amount through use.

Example B
An item or property, plant and equipment with a cost of 100 and a carrying
amount of 80 is revalued to 150. [Refer: IAS 16 paragraphs 31–42] No
equivalent adjustment is made for tax purposes. Cumulative depreciation for
tax purposes is 30 and the tax rate is 30%. If the item is sold for more than
cost, the cumulative tax depreciation of 30 will be included in taxable
income but sale proceeds in excess of cost will not be taxable.

The tax base of the item is 70 and there is a taxable temporary difference of 80. If the
entity expects to recover the carrying amount by using the item, it must generate
taxable income of 150, but will only be able to deduct depreciation of 70. On this basis,
there is a deferred tax liability of 24 (80 at 30%). If the entity expects to recover the
carrying amount by selling the item immediately for proceeds of 150, the deferred tax
liability is computed as follows:

continued...

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...continued

Example B
Taxable Tax Rate Deferred
Temporary Tax Liabil-
Difference ity
Cumulative tax depreciation 30 30% 9
Proceeds in excess of cost 50 nil –
Total 80 9

(note: in accordance with paragraph 61A, the additional deferred tax that arises on the
revaluation is recognised in other comprehensive income)

Example C
The facts are as in example B, except that if the item is sold for more than
cost, the cumulative tax depreciation will be included in taxable income
(taxed at 30%) and the sale proceeds will be taxed at 40%, after deducting an
inflation‑adjusted cost of 110.

If the entity expects to recover the carrying amount by using the item, it must generate
taxable income of 150, but will only be able to deduct depreciation of 70. On this basis,
the tax base is 70, there is a taxable temporary difference of 80 and there is a deferred
tax liability of 24 (80 at 30%), as in example B.

If the entity expects to recover the carrying amount by selling the item immediately for
proceeds of 150, the entity will be able to deduct the indexed cost of 110. The net
proceeds of 40 will be taxed at 40%. In addition, the cumulative tax depreciation of 30
will be included in taxable income and taxed at 30%. On this basis, the tax base is 80
(110 less 30), there is a taxable temporary difference of 70 and there is a deferred tax
liability of 25 (40 at 40% plus 30 at 30%). If the tax base is not immediately apparent
in this example, it may be helpful to consider the fundamental principle set out
in paragraph 10.

(note: in accordance with paragraph 61A, the additional deferred tax that arises on the
revaluation is recognised in other comprehensive income)

E19 [IFRIC® Update, March 2015, Agenda Decision, ‘IAS 12 Income Taxes—Selection of
applicable tax rate for the measurement of deferred tax relating to an investment in an
associate’
The Interpretations Committee received a request to clarify the selection of the applicable
tax rate for the measurement of deferred tax relating to an investment in an associate in a
multi‑tax rate jurisdiction. The submitter asked how the tax rate should be selected when
local tax legislation prescribes different tax rates for different manners of recovery (for
example, dividends, sale, liquidation, etc). The submitter described a situation in which the
carrying amount of an investment in an associate could be recovered by:
(a) receiving dividends (or other distribution of profit);
(b) sale to a third party; or
(c) receiving residual assets upon liquidation of the associate.
continued...

© IFRS Foundation A1229

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...continued
The submitter stated that an investor normally considers all of these variants of recovery.
One part of the temporary difference will be received as dividends during the holding
period, and another part will be recovered upon sale or liquidation.
The Interpretations Committee noted that paragraph 51A of IAS 12 states that an entity
measures deferred tax liabilities and deferred tax assets using the tax rate and the tax base
that are consistent with the expected manner of recovery or settlement. Accordingly, the tax
rate should reflect the expected manner of recovery or settlement. If one part of the
temporary difference is expected to be received as dividends, and another part is expected
to be recovered upon sale or liquidation (for example, an investor has a plan to sell the
investment later and expects to receive dividends until the sale of the investment), different
tax rates would be applied to the parts of the temporary difference in order to be consistent
with the expected manner of recovery.
The Interpretations Committee observed that it had received no evidence of diversity in the
application of IAS 12 and that the Standard contains sufficient guidance to address the
matters raised. Accordingly, the Interpretations Committee thought that neither an
Interpretation of nor an amendment to IAS 12 was necessary.
Consequently, the Interpretations Committee decided not to add this issue to its agenda.]

51B If a deferred tax liability or deferred tax asset arises from a non‑depreciable
asset measured using the revaluation model in IAS 16, [Refer: IAS 16 paragraphs
31–42] the measurement of the deferred tax liability or deferred tax asset shall
reflect the tax consequences of recovering the carrying amount of the
non‑depreciable asset through sale, regardless of the basis of measuring the
carrying amount of that asset. Accordingly, if the tax law specifies a tax rate
applicable to the taxable amount derived from the sale of an asset that differs
from the tax rate applicable to the taxable amount derived from using an
asset, the former rate is applied in measuring the deferred tax liability or asset
related to a non‑depreciable asset.
[Refer: Basis for Conclusions paragraphs BC5–BC7]

51C If a deferred tax liability or asset arises from investment property that is
measured using the fair value model in IAS 40, [Refer: IAS 40 paragraphs 35–55]
there is a rebuttable presumption that the carrying amount of the investment
property will be recovered through sale.E20 Accordingly, unless the
presumption is rebutted, the measurement of the deferred tax liability or
deferred tax asset shall reflect the tax consequences of recovering the carrying
amount of the investment property entirely through sale. This presumption is
rebutted if the investment property is depreciable and is held within a
business model whose objective is to consume substantially all of the
economic benefits embodied in the investment property over time, rather
than through sale. If the presumption is rebutted, the requirements of
paragraphs 51 and 51A shall be followed.
[Refer: Basis for Conclusions paragraphs BC8–BC26]

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Example illustrating paragraph 51C

An investment property has a cost of 100 and fair value of 150. It is
measured using the fair value model in IAS 40. It comprises land with a cost
of 40 and fair value of 60 and a building with a cost of 60 and fair value of
90. The land has an unlimited useful life.

Cumulative depreciation of the building for tax purposes is 30. Unrealised

changes in the fair value of the investment property do not affect taxable
profit. If the investment property is sold for more than cost, the reversal of
the cumulative tax depreciation of 30 will be included in taxable profit and
taxed at an ordinary tax rate of 30%. For sales proceeds in excess of cost, tax
law specifies tax rates of 25% for assets held for less than two years and 20%
for assets held for two years or more.
Because the investment property is measured using the fair value model in IAS 40, there
is a rebuttable presumption that the entity will recover the carrying amount of the
investment property entirely through sale. If that presumption is not rebutted, the
deferred tax reflects the tax consequences of recovering the carrying amount entirely
through sale, even if the entity expects to earn rental income from the property before
sale.

The tax base of the land if it is sold is 40 and there is a taxable temporary difference of
20 (60 – 40). The tax base of the building if it is sold is 30 (60 – 30) and there is a
taxable temporary difference of 60 (90 – 30). As a result, the total taxable temporary
difference relating to the investment property is 80 (20 + 60).

In accordance with paragraph 47, the tax rate is the rate expected to apply to the
period when the investment property is realised. Thus, the resulting deferred tax
liability is computed as follows, if the entity expects to sell the property after holding it
for more than two years:
Taxable Tax Rate Deferred
Temporary Tax Liabil-
Difference ity
Cumulative tax depreciation 30 30% 9
Proceeds in excess of cost 50 20% 10
Total 80 19

If the entity expects to sell the property after holding it for less than two years, the above
computation would be amended to apply a tax rate of 25%, rather than 20%, to the
proceeds in excess of cost.
If, instead, the entity holds the building within a business model whose objective is to
consume substantially all of the economic benefits embodied in the building over time,
rather than through sale, this presumption would be rebutted for the building.
However, the land is not depreciable. Therefore the presumption of recovery through
sale would not be rebutted for the land. It follows that the deferred tax liability would
reflect the tax consequences of recovering the carrying amount of the building through
use and the carrying amount of the land through sale.

continued...

© IFRS Foundation A1231

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...continued

Example illustrating paragraph 51C

The tax base of the building if it is used is 30 (60 – 30) and there is a taxable
temporary difference of 60 (90 – 30), resulting in a deferred tax liability of 18 (60 at
30%).

The tax base of the land if it is sold is 40 and there is a taxable temporary difference of
20 (60 – 40), resulting in a deferred tax liability of 4 (20 at 20%).

As a result, if the presumption of recovery through sale is rebutted for the building, the
deferred tax liability relating to the investment property is 22 (18 + 4).

E20 [IFRIC® Update, November 2011, Agenda Decision, ‘IAS 12 Income Taxes—Rebuttable
presumption to determine the manner of recovery’
Paragraph 51C of IAS 12 contains a rebuttable presumption, for the purposes of recognising
deferred tax, that the carrying amount of an investment property measured at fair value will
be recovered through sale. The Committee received a request to clarify whether that
presumption can be rebutted in cases other than the case described in paragraph 51C.
The Interpretations Committee noted that a presumption is a matter of consistently applying
a principle (or an exception) in IFRSs in the absence of acceptable reasons to the contrary
and that it is rebutted when there is sufficient evidence to overcome the presumption.
Because paragraph 51C is expressed as a rebuttable presumption and because the sentence
explaining the rebuttal of the presumption does not express the rebuttal as ‘if and only if’,
the Committee thinks that the presumption in paragraph 51C of IAS 12 is rebutted in other
circumstances as well, provided that sufficient evidence is available to support that
rebuttal.
Based on the rationale described above, the Committee decided not to add this issue to its
agenda.]

51D The rebuttable presumption in paragraph 51C also applies when a deferred
tax liability or a deferred tax asset arises from measuring investment property
in a business combination if the entity will use the fair value model
[Refer: IAS 40 paragraphs 33–55] when subsequently measuring that investment
property.
[Refer: Basis for Conclusions paragraph BC16]

51E Paragraphs 51B–51D do not change the requirements to apply the principles
in paragraphs 24–33 (deductible temporary differences) and paragraphs 34–36
(unused tax losses and unused tax credits) of this Standard when recognising
and measuring deferred tax assets.
[Refer: Basis for Conclusions paragraphs BC2]

52 [moved and renumbered 51A]

52A In some jurisdictions, income taxes [Refer: paragraph 2] are payable at a higher
or lower rate if part or all of the net profit or retained earnings is paid out as a
dividend to shareholders of the entity. In some other jurisdictions, income
taxes may be refundable or payable if part or all of the net profit or retained
earnings is paid out as a dividend to shareholders of the entity. In these
circumstances, current and deferred tax assets and liabilities are measured at
the tax rate applicable to undistributed profits.

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52B [Deleted]

Example illustrating paragraphs 52A and 57A

The following example deals with the measurement of current and deferred
tax assets and liabilities for an entity in a jurisdiction where income taxes
[Refer: paragraph 2] are payable at a higher rate on undistributed profits
(50%) with an amount being refundable when profits are distributed. The
tax rate on distributed profits is 35%. At the end of the reporting period,
31 December 20X1, the entity does not recognise a liability for dividends
proposed or declared after the reporting period. [Refer: IAS 10 paragraph 12]
As a result, no dividends are recognised in the year 20X1. Taxable income for
20X1 is 100,000. The net taxable temporary difference for the year 20X1 is
40,000.

The entity recognises a current tax liability and a current income tax expense of
50,000. No asset is recognised for the amount potentially recoverable as a result of
future dividends. The entity also recognises a deferred tax liability and deferred tax
expense of 20,000 (40,000 at 50%) representing the income taxes that the entity will
pay when it recovers or settles the carrying amounts of its assets and liabilities based on
the tax rate applicable to undistributed profits.

Subsequently, on 15 March 20X2 the entity recognises dividends of 10,000

from previous operating profits as a liability. [Refer: IAS 37 paragraph 14]

On 15 March 20X2, the entity recognises the recovery of income taxes of 1,500 (15% of
the dividends recognised as a liability) as a current tax asset and as a reduction of
current income tax expense for 20X2.

53 Deferred tax assets and liabilities shall not be discounted.E21

E21 [IFRIC® Update, June 2004, 'IAS 12 Income Taxes'

The IFRIC considered whether an entity should discount current taxes payable under IFRSs
when an agreement with the taxing agency has been reached to permit the entity to pay
such taxes over a period greater than twelve months. The general view of the IFRIC was that
current taxes payable should be discounted when the effects are material. However, it was
noted that there is a potential conflict with the requirements of IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance. As the Board had tentatively
decided to withdraw IAS 20, the members agreed that the issue of discounting current taxes
payable should no longer be uncertain and that the topic need not be added to the IFRIC'S
agenda.]

54 The reliable determination of deferred tax assets and liabilities on a

discounted basis requires detailed scheduling of the timing of the reversal of
each temporary difference. In many cases such scheduling is impracticable or
highly complex. Therefore, it is inappropriate to require discounting of
deferred tax assets and liabilities. To permit, but not to require, discounting
would result in deferred tax assets and liabilities which would not be
comparable between entities. [Refer: Conceptual Framework paragraphs 2.24-2.29]
Therefore, this Standard does not require or permit the discounting of
deferred tax assets and liabilities.

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55 Temporary differences are determined by reference to the carrying amount of

an asset or liability. This applies even where that carrying amount is itself
determined on a discounted basis, for example in the case of retirement
benefit obligations (see IAS 19 Employee Benefits).

56 The carrying amount of a deferred tax asset shall be reviewed at the end of
each reporting period. An entity shall reduce the carrying amount of a
deferred tax asset to the extent that it is no longer probable that sufficient
taxable profit will be available to allow the benefit of part or all of that
deferred tax asset to be utilised. [Refer: paragraphs 27–31 and 34–37] Any such
reduction shall be reversed to the extent that it becomes probable that
sufficient taxable profit will be available.

Recognition of current and deferred tax

57 Accounting for the current and deferred tax effects of a transaction or other
event is consistent with the accounting for the transaction or event itself.
Paragraphs 58 to 68C implement this principle.

57A An entity shall recognise the income tax consequences of dividends as defined
in IFRS 9 when it recognises a liability to pay a dividend. The income tax
consequences of dividends are linked more directly to past transactions or
events that generated distributable profits than to distributions to owners.
Therefore, an entity shall recognise the income tax consequences of dividends
in profit or loss, other comprehensive income or equity according to where
the entity originally recognised those past transactions or events.
[Refer:
Basis for Conclusions paragraphs BC63–BC69
paragraph 98I for effective date]

Items recognised in profit or loss

[Refer: Illustrative Examples: Illustrative computations and presentation examples
1–7]

58 Current and deferred tax shall be recognised as income or an expense and

included in profit or loss for the periodE22, [Refer: Illustrative Examples:
Illustrative computations and presentation example 1] except to the extent that
the tax arises from:

(a) a transaction or event which is recognised, in the same or a

different period, outside profit or loss, either in other
comprehensive income or directly in equity (see paragraphs 61A–65);
or
[Refer: SIC‑25]

(b) a business combination (other than the acquisition by an investment

entity, as defined in IFRS 10 Consolidated Financial Statements, of a
subsidiary that is required to be measured at fair value through
profit or loss) (see paragraphs 66–68).

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E22 [IFRIC® Update, January 2016, Agenda Decision, ‘IAS 12 Income Taxes—Recognition of
deferred taxes for the effect of exchange rate changes’
The Interpretations Committee received a submission regarding the recognition of deferred
taxes when the tax bases of an entity’s non-monetary assets and liabilities are determined
in a currency that is different from its functional currency. The question is whether deferred
taxes that result from exchange rate changes on the tax bases of non-current assets are
recognised through profit or loss.
The Interpretations Committee noted that paragraph 41 of IAS 12 Income Taxes states that
when the tax base of a non-monetary asset or liability is determined in a currency that is
different from the functional currency, temporary differences arise resulting in a deferred
tax asset or liability. Such deferred tax does not arise from a transaction or event that is
recognised outside profit or loss and is therefore charged or credited to profit or loss in
accordance with paragraph 58 of IAS 12. Such deferred tax charges or credits would be
presented with other deferred taxes, instead of with foreign exchange gains or losses, in the
statement of profit or loss.
The Interpretations Committee also noted that paragraph 79 of IAS 12 requires the
disclosure of the major components of tax expense (income). The Interpretations Committee
observed that when changes in the exchange rate are the cause of a major component of the
deferred tax charge or credit, an explanation of this in accordance with paragraph 79 of
IAS 12 would help users of financial statements to understand the tax expense (income) for
the period.
In the light of existing IFRS requirements, the Interpretations Committee determined that
neither an Interpretation nor an amendment to a Standard was necessary. Consequently,
the Interpretations Committee decided not to add this issue to its agenda.]

59 Most deferred tax liabilities and deferred tax assets arise where income or
expense is included in accounting profit in one period, but is included in
taxable profit (tax loss) in a different period. The resulting deferred tax is
recognised in profit or loss. Examples are when:

(a) interest, royalty or dividend revenue is received in arrears and is

included in accounting profit in accordance with IFRS 15 Revenue from
Contracts with Customers, IAS 39 Financial Instruments: Recognition and
Measurement or IFRS 9 Financial Instruments, as relevant, but is included
in taxable profit (tax loss) on a cash basis; and

(b) costs of intangible assets have been capitalised in accordance with

IAS 38 [Refer: for example IAS 38 paragraph 57] and are being amortised
in profit or loss, [Refer: IAS 38 paragraph 97] but were deducted for tax
purposes when they were incurred.

60 The carrying amount of deferred tax assets and liabilities may change even
though there is no change in the amount of the related temporary differences.
This can result, for example, from:

(a) a change in tax rates or tax laws;

[Refer: Illustrative Examples: Illustrative computations and presentation
example 2]

(b) a reassessment of the recoverability of deferred tax assets; or

[Refer: paragraph 37]

(c) a change in the expected manner of recovery of an asset.

[Refer: paragraph 51]

© IFRS Foundation A1235

IAS 12

The resulting deferred tax is recognised in profit or loss, except to the extent
that it relates to items previously recognised outside profit or loss (see
paragraph 63).

Items recognised outside profit or loss

[Refer:
Illustrative Examples: Illustrative computations and presentation examples 2–7
SIC‑25]

61 [Deleted]

61A Current tax and deferred tax shall be recognised outside profit or loss if
the tax relates to items that are recognised, in the same or a different
period, outside profit or loss. Therefore, current tax and deferred tax that
relates to items that are recognised, in the same or a different period:

(a) in other comprehensive income, shall be recognised in other

comprehensive income (see paragraph 62).

(b) directly in equity, shall be recognised directly in equity (see

paragraph 62A).

62 International Financial Reporting Standards require or permit particular items

to be recognised in other comprehensive income. Examples of such items are:

(a) a change in carrying amount arising from the revaluation of property,

plant and equipment (see IAS 16); and
[Refer:
Illustrative Examples: Illustrative computations and presentation example 2
IAS 16 paragraphs 29 and 31–42]

(b) [deleted]

(c) exchange differences arising on the translation of the financial

statements of a foreign operation (see IAS 21).
[Refer: IAS 21 paragraphs 44–47]

(d) [deleted]

62A International Financial Reporting Standards require or permit particular items

to be credited or charged directly to equity. Examples of such items are:

(a) an adjustment to the opening balance of retained earnings resulting

from either a change in accounting policy that is applied
retrospectively or the correction of an error (see IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors); and

(b) amounts arising on initial recognition of the equity component of a

compound financial instrument (see paragraph 23).

63 In exceptional circumstances it may be difficult to determine the amount of

current and deferred tax that relates to items recognised outside profit or loss
(either in other comprehensive income or directly in equity). This may be the
case, for example, when:

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 IAS 12

(a) there are graduated rates of income tax [Refer: paragraph 2] and it is
impossible to determine the rate at which a specific component
of taxable profit (tax loss) has been taxed;

(b) a change in the tax rate or other tax rules affects a deferred tax
asset or liability relating (in whole or in part) to an item that was
previously recognised outside profit or loss; or

(c) an entity determines that a deferred tax asset should be recognised, or

should no longer be recognised in full, and the deferred tax asset
relates (in whole or in part) to an item that was previously recognised
outside profit or loss. [Refer also: Illustrative Examples: Illustrative
computations and presentation example 7]

In such cases, the current and deferred tax related to items that are
recognised outside profit or loss are based on a reasonable pro rata allocation
of the current and deferred tax of the entity in the tax jurisdiction concerned,
or other method that achieves a more appropriate allocation in the
circumstances.

64 IAS 16 does not specify whether an entity should transfer each year from
revaluation surplus to retained earnings an amount equal to the difference
between the depreciation or amortisation on a revalued asset and the
depreciation or amortisation based on the cost of that asset. If an entity makes
such a transfer, the amount transferred is net of any related deferred tax.
Similar considerations apply to transfers made on disposal of an item of
property, plant or equipment.

65 When an asset is revalued for tax purposes and that revaluation is related to
an accounting revaluation of an earlier period, or to one that is expected to be
carried out in a future period, the tax effects of both the asset revaluation and
the adjustment of the tax base are recognised in other comprehensive income
in the periods in which they occur. However, if the revaluation for tax
purposes is not related to an accounting revaluation of an earlier period, or to
one that is expected to be carried out in a future period, the tax effects of the
adjustment of the tax base are recognised in profit or loss.

65A When an entity pays dividends to its shareholders, it may be required to pay a
portion of the dividends to taxation authorities on behalf of shareholders.
In many jurisdictions, this amount is referred to as a withholding tax. Such an
amount paid or payable to taxation authorities is charged to equity as a part of
the dividends.

© IFRS Foundation A1237

IAS 12

Deferred tax arising from a business combination

[Refer:
Illustrative Examples Part A paragraph 12
Illustrative Examples Part B paragraph 9
Illustrative Examples: Illustrative computations and presentation example 3]

66 As explained in paragraphs 19 and 26(c), temporary differences may arise in a

business combination. In accordance with IFRS 3, an entity recognises any
resulting deferred tax assets (to the extent that they meet the recognition
criteria in paragraph 24) or deferred tax liabilities as identifiable assets and
liabilities at the acquisition date. Consequently, those deferred tax assets and
deferred tax liabilities affect the amount of goodwill or the bargain purchase
gain the entity recognises. However, in accordance with paragraph 15(a), an
entity does not recognise deferred tax liabilities arising from the initial
recognition of goodwill.

67 As a result of a business combination, the probability of realising a

pre‑acquisition deferred tax asset of the acquirer could change. An acquirer
may consider it probable that it will recover its own deferred tax asset that
was not recognised before the business combination. For example, the
acquirer may be able to utilise the benefit of its unused tax losses against the
future taxable profit of the acquiree. Alternatively, as a result of the business
combination it might no longer be probable that future taxable profit will
allow the deferred tax asset to be recovered. In such cases, the acquirer
recognises a change in the deferred tax asset in the period of the business
combination, but does not include it as part of the accounting for the business
combination. Therefore, the acquirer does not take it into account in
measuring the goodwill or bargain purchase gain it recognises in the business
combination.

68 The potential benefit of the acquiree’s income tax loss carryforwards or other
deferred tax assets might not satisfy the criteria for separate recognition when
a business combination is initially accounted for but might be realised
subsequently. An entity shall recognise acquired deferred tax benefits that it
realises after the business combination as follows:

(a) Acquired deferred tax benefits recognised within the measurement

period that result from new information about facts and
circumstances that existed at the acquisition date shall be applied to
reduce the carrying amount of any goodwill related to that acquisition.
If the carrying amount of that goodwill is zero, any remaining deferred
tax benefits shall be recognised in profit or loss.

(b) All other acquired deferred tax benefits realised shall be recognised in
profit or loss (or, if this Standard so requires, outside profit or loss).

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 IAS 12

Current and deferred tax arising from share‑based

payment transactions
[Refer: Illustrative Examples: Illustrative computations and presentation example 5]

68A In some tax jurisdictions, an entity receives a tax deduction (ie an amount that
is deductible in determining taxable profit) that relates to remuneration paid
in shares, share options or other equity instruments of the entity. The amount
of that tax deduction may differ from the related cumulative remuneration
expense, and may arise in a later accounting period. For example, in some
jurisdictions, an entity may recognise an expense for the consumption of
employee services received as consideration for share options granted, in
accordance with IFRS 2 Share‑based Payment, [Refer: IFRS 2 paragraph 7] and not
receive a tax deduction until the share options are exercised, with the
measurement of the tax deduction based on the entity’s share price at the
date of exercise.

68B As with the research costs discussed in paragraphs 9 and 26(b) of this
Standard, the difference between the tax base of the employee services
received to date (being the amount the taxation authorities will permit as a
deduction in future periods), and the carrying amount of nil, is a deductible
temporary difference that results in a deferred tax asset. If the amount the
taxation authorities will permit as a deduction in future periods is not known
at the end of the period, it shall be estimated, based on information available
at the end of the period. For example, if the amount that the taxation
authorities will permit as a deduction in future periods is dependent upon the
entity’s share price at a future date, the measurement of the deductible
temporary difference should be based on the entity’s share price at the end of
the period.

68C As noted in paragraph 68A, the amount of the tax deduction (or estimated
future tax deduction, measured in accordance with paragraph 68B) may differ
from the related cumulative remuneration expense. Paragraph 58 of the
Standard requires that current and deferred tax should be recognised as
income or an expense and included in profit or loss for the period, except to
the extent that the tax arises from (a) a transaction or event that is recognised,
in the same or a different period, outside profit or loss, or (b) a business
combination (other than the acquisition by an investment entity of a
subsidiary that is required to be measured at fair value through profit or loss).
If the amount of the tax deduction (or estimated future tax deduction) exceeds
the amount of the related cumulative remuneration expense, this indicates
that the tax deduction relates not only to remuneration expense but also to an
equity item. In this situation, the excess of the associated current or deferred
tax should be recognised directly in equity.

[Refer: IAS 1 paragraph 88]

Presentation

Tax assets and tax liabilities

69–70 [Deleted]

© IFRS Foundation A1239

IAS 12

Offset
71 An entity shall offset current tax assets and current tax liabilities if, and
only if, the entity:

(a) has a legally enforceable right to set off the recognised amounts;
and

(b) intends either to settle on a net basis, or to realise the asset and
settle the liability simultaneously.

72 Although current tax assets and liabilities are separately recognised and
measured they are offset in the statement of financial position subject to
criteria similar to those established for financial instruments in IAS 32. An
entity will normally have a legally enforceable right to set off a current tax
asset against a current tax liability when they relate to income taxes
[Refer: paragraph 2] levied by the same taxation authority and the taxation
authority permits the entity to make or receive a single net payment.

73 In consolidated financial statements, a current tax asset of one entity in a

group is offset against a current tax liability of another entity in the group if,
and only if, the entities concerned have a legally enforceable right to make or
receive a single net payment and the entities intend to make or receive such a
net payment or to recover the asset and settle the liability simultaneously.

74 An entity shall offset deferred tax assets and deferred tax liabilities if, and
only if:

(a) the entity has a legally enforceable right to set off current tax assets
against current tax liabilities; and

(b) the deferred tax assets and the deferred tax liabilities relate to
income taxes [Refer: paragraph 2] levied by the same taxation
authority on either:

(i) the same taxable entity; or

(ii) different taxable entities which intend either to settle

current tax liabilities and assets on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax
liabilities or assets are expected to be settled or recovered.

75 To avoid the need for detailed scheduling of the timing of the reversal of each
temporary difference, this Standard requires an entity to set off a deferred tax
asset against a deferred tax liability of the same taxable entity if, and only if,
they relate to income taxes [Refer: paragraph 2] levied by the same taxation
authority and the entity has a legally enforceable right to set off current tax
assets against current tax liabilities.

76 In rare circumstances, an entity may have a legally enforceable right of

set‑off, and an intention to settle net, for some periods but not for others. In
such rare circumstances, detailed scheduling may be required to establish
reliably whether the deferred tax liability of one taxable entity will result in
increased tax payments in the same period in which a deferred tax asset of

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 IAS 12

another taxable entity will result in decreased payments by that second

taxable entity.

Tax expense
Tax expense (income) related to profit or loss from ordinary
activities
77 The tax expense (income) related to profit or loss from ordinary activities
shall be presented as part of profit or loss in the statement(s) of profit or
loss and other comprehensive income.

77A [Deleted]

Exchange differences on deferred foreign tax liabilities or assets

78 IAS 21 requires certain exchange differences to be recognised as income or
expense but does not specify where such differences should be presented in
the statement of comprehensive income. Accordingly, where exchange
differences on deferred foreign tax liabilities or assets are recognised in the
statement of comprehensive income, such differences may be classified as
deferred tax expense (income) if that presentation is considered to be the most
useful to financial statement users.

Disclosure
79 The major components of tax expense (income) shall be disclosed
separately.E23
[Refer: Illustrative Examples: Illustrative computations and presentation example 2]

E23 [IFRIC® Update, June 2004, ‘IAS 12 Income Taxes’

The IFRIC considered whether an entity should discount current taxes payable under IFRSs
when an agreement with the taxing agency has been reached to permit the entity to pay
such taxes over a period greater than twelve months. The general view of the IFRIC was that
current taxes payable should be discounted when the effects are material. However, it was
noted that there is a potential conflict with the requirements of IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance. As the Board had tentatively
decided to withdraw IAS 20, the members agreed that the issue of discounting current taxes
payable should no longer be uncertain and that the topic need not be added to the IFRIC'S
agenda.]

80 Components of tax expense (income) may include:

(a) current tax expense (income);

(b) any adjustments recognised in the period for current tax of prior
periods;

(c) the amount of deferred tax expense (income) relating to the

origination and reversal of temporary differences;

(d) the amount of deferred tax expense (income) relating to changes in tax
rates or the imposition of new taxes;

© IFRS Foundation A1241

IAS 12

(e) the amount of the benefit arising from a previously unrecognised tax
loss, tax credit or temporary difference of a prior period that is used to
reduce current tax expense;

(f) the amount of the benefit from a previously unrecognised tax loss, tax
credit or temporary difference of a prior period that is used to reduce
deferred tax expense;

(g) deferred tax expense arising from the write‑down, or reversal of a

previous write‑down, of a deferred tax asset in accordance with
paragraph 56; and

(h) the amount of tax expense (income) relating to those changes in

accounting policies and errors that are included in profit or loss in
accordance with IAS 8, because they cannot be accounted for
retrospectively.

81 The following shall also be disclosed separately:

(a) the aggregate current and deferred tax relating to items that are
charged or credited directly to equity (see paragraph 62A);
[Refer: paragraphs 58 and 61–65]

(ab) the amount of income tax relating to each component of other

comprehensive income (see paragraph 62 and IAS 1 (as revised in
2007));

(b) [deleted]

(c) an explanation of the relationship between tax expense (income)

and accounting profit in either or both of the following forms:

(i) a numerical reconciliation between tax expense (income) and

the product of accounting profit multiplied by the applicable
tax rate(s), [Refer: paragraphs 46–52A] disclosing also the basis
on which the applicable tax rate(s) is (are) computed; or

(ii) a numerical reconciliation between the average effective tax

rate and the applicable tax rate, disclosing also the basis on
which the applicable tax rate is computed;

[Refer: Illustrative Examples: Illustrative computations and presentation

example 2]

(d) an explanation of changes in the applicable tax rate(s) compared to

the previous accounting period;
[Refer: Illustrative Examples: Illustrative computations and presentation
example 2]

(e) the amount (and expiry date, if any) of deductible temporary

differences, unused tax losses, and unused tax credits for which no
deferred tax asset is recognised in the statement of financial
position;

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 IAS 12

(f) the aggregate amount of temporary differences associated with

investments in subsidiaries, branches and associates and interests in
joint arrangements, for which deferred tax liabilities have not been
recognised (see paragraph 39);

(g) in respect of each type of temporary difference, and in respect of

each type of unused tax losses and unused tax credits:

(i) the amount of the deferred tax assets and liabilities

recognised in the statement of financial position for each
period presented;

(ii) the amount of the deferred tax income or expense

recognised in profit or loss, if this is not apparent from the
changes in the amounts recognised in the statement of
financial position;

[Refer: Illustrative Examples: Illustrative computations and presentation

example 2]

(h) in respect of discontinued operations, the tax expense relating to:

(i) the gain or loss on discontinuance; and

(ii) the profit or loss from the ordinary activities of the

discontinued operation for the period, together with the
corresponding amounts for each prior period presented;

[Refer: IFRS 5 paragraph 33(b)]

(i) the amount of income tax [Refer: paragraph 2] consequences of

dividends to shareholders of the entity that were proposed or
declared before the financial statements were authorised for issue,
but are not recognised as a liability in the financial statements;
[Refer:
IAS 1 paragraph 137
IAS 10 paragraphs 12 and 13]

(j) if a business combination in which the entity is the acquirer causes

a change in the amount recognised for its pre‑acquisition deferred
tax asset (see paragraph 67), the amount of that change; and

(k) if the deferred tax benefits acquired in a business combination are

not recognised at the acquisition date but are recognised after the
acquisition date (see paragraph 68), a description of the event or
change in circumstances that caused the deferred tax benefits to be
recognised.

82 An entity shall disclose the amount of a deferred tax asset and the nature
of the evidence supporting its recognition, when:

(a) the utilisation of the deferred tax asset is dependent on future

taxable profits in excess of the profits arising from the reversal of
existing taxable temporary differences; and

© IFRS Foundation A1243

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(b) the entity has suffered a loss in either the current or preceding
period in the tax jurisdiction to which the deferred tax asset relates.
[Refer: paragraphs 27–31 and 34–36]

82A In the circumstances described in paragraph 52A, an entity shall disclose

the nature of the potential income tax [Refer: paragraph 2] consequences that
would result from the payment of dividends to its shareholders. In
addition, the entity shall disclose the amounts of the potential income tax
consequences practicably determinable and whether there are any
potential income tax consequences not practicably determinable.

83 [Deleted]

84 The disclosures required by paragraph 81(c) enable users of financial

statements to understand whether the relationship between tax expense
(income) and accounting profit is unusual and to understand the significant
factors that could affect that relationship in the future. The relationship
between tax expense (income) and accounting profit may be affected by such
factors as revenue that is exempt from taxation, expenses that are not
deductible in determining taxable profit (tax loss), the effect of tax losses and
the effect of foreign tax rates.

85 In explaining the relationship between tax expense (income) and accounting

profit, an entity uses an applicable tax rate that provides the most meaningful
information to the users of its financial statements. Often, the most
meaningful rate is the domestic rate of tax in the country in which the entity
is domiciled, aggregating the tax rate applied for national taxes with the rates
applied for any local taxes which are computed on a substantially similar level
of taxable profit (tax loss). However, for an entity operating in several
jurisdictions, it may be more meaningful to aggregate separate reconciliations
prepared using the domestic rate in each individual jurisdiction. The following
example illustrates how the selection of the applicable tax rate affects the
presentation of the numerical reconciliation.

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 IAS 12

Example illustrating paragraph 85

In 19X2, an entity has accounting profit in its own jurisdiction (country A) of
1,500 (19X1: 2,000) and in country B of 1,500 (19X1: 500). The tax rate is 30%
in country A and 20% in country B. In country A, expenses of 100 (19X1:
200) are not deductible for tax purposes.
The following is an example of a reconciliation to the domestic tax rate.
19X1 19X2
Accounting profit 2,500 3,000
Tax at the domestic rate of 30% 750 900
Tax effect of expenses that are not deductible for tax
purposes 60 30
Effect of lower tax rates in country B (50) (150)
Tax expense 760 780

The following is an example of a reconciliation prepared by aggregating separate

reconciliations for each national jurisdiction. Under this method, the effect of differ-
ences between the reporting entity’s own domestic tax rate and the domestic tax rate
in other jurisdictions does not appear as a separate item in the reconciliation. An
entity may need to discuss the effect of significant changes in either tax rates, or the
mix of profits earned in different jurisdictions, in order to explain changes in the
applicable tax rate(s), as required by paragraph 81(d).
Accounting profit 2,500 3,000
Tax at the domestic rates applicable to profits in the
country concerned 700 750
Tax effect of expenses that are not deductible for tax
purposes 60 30
Tax expense 760 780

86 The average effective tax rate is the tax expense (income) divided by the
accounting profit.

87 It would often be impracticable to compute the amount of unrecognised

deferred tax liabilities arising from investments in subsidiaries, branches and
associates and interests in joint arrangements (see paragraph 39). Therefore,
this Standard requires an entity to disclose the aggregate amount of the
underlying temporary differences but does not require disclosure of the
deferred tax liabilities. Nevertheless, where practicable, entities are
encouraged to disclose the amounts of the unrecognised deferred tax
liabilities because financial statement users may find such information useful.

© IFRS Foundation A1245

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87A Paragraph 82A requires an entity to disclose the nature of the potential
income tax [Refer: paragraph 2] consequences that would result from the
payment of dividends to its shareholders. An entity discloses the important
features of the income tax systems and the factors that will affect the amount
of the potential income tax consequences of dividends.

87B It would sometimes not be practicable to compute the total amount of the
potential income tax [Refer: paragraph 2] consequences that would result from
the payment of dividends to shareholders. This may be the case, for example,
where an entity has a large number of foreign subsidiaries. However, even in
such circumstances, some portions of the total amount may be easily
determinable. For example, in a consolidated group, a parent and some of its
subsidiaries may have paid income taxes at a higher rate on undistributed
profits and be aware of the amount that would be refunded on the payment of
future dividends to shareholders from consolidated retained earnings. In this
case, that refundable amount is disclosed. If applicable, the entity also
discloses that there are additional potential income tax consequences not
practicably determinable. In the parent’s separate financial statements, if any,
the disclosure of the potential income tax consequences relates to the parent’s
retained earnings.

87C An entity required to provide the disclosures in paragraph 82A may also be
required to provide disclosures related to temporary differences associated
with investments in subsidiaries, branches and associates or interests in joint
arrangements. In such cases, an entity considers this in determining the
information to be disclosed under paragraph 82A. For example, an entity may
be required to disclose the aggregate amount of temporary differences
associated with investments in subsidiaries for which no deferred tax
liabilities have been recognised (see paragraph 81(f)). If it is impracticable to
compute the amounts of unrecognised deferred tax liabilities (see
paragraph 87) there may be amounts of potential income tax
[Refer: paragraph 2] consequences of dividends not practicably determinable
related to these subsidiaries.

88 An entity discloses any tax‑related contingent liabilities and contingent assets

in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.E24
[Refer: IAS 37 paragraphs 86–92] Contingent liabilities and contingent assets
may arise, for example, from unresolved disputes with the taxation
authorities. Similarly, where changes in tax rates or tax laws are enacted or
announced after the reporting period, an entity discloses any significant effect
of those changes on its current and deferred tax assets and liabilities (see
IAS 10 Events after the Reporting Period). [Refer: IAS 10 paragraph 21]

E24 [IFRIC® Update, July 2014, Agenda Decision, ‘IAS 12 Income Taxes—recognition of current
income tax on uncertain tax position’
The Interpretations Committee received a request to clarify the recognition of a tax asset in
the situation in which tax laws require an entity to make an immediate payment when a tax
examination results in an additional charge, even if the entity intends to appeal against the
additional charge. In the situation described by the submitter, the entity expects, but is not
certain, to recover some or all of the amount paid. The Interpretations Committee was
continued...

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...continued
asked to clarify whether IAS 12 is applied to determine whether to recognise an asset for the
payment, or whether the guidance in IAS 37 Provisions, Contingent Liabilities and
Contingent Assets should be applied.
The Interpretations Committee noted that:
(a) paragraph 12 of IAS 12 provides guidance on the recognition of current tax assets and
current tax liabilities. In particular, it states that:
(i) current tax for current and prior periods shall, to the extent unpaid, be recognised
as a liability; and
(ii) if the amount already paid in respect of current and prior periods exceeds the
amount due for those periods, the excess shall be recognised as an asset.
(b) in the specific fact pattern described in the submission, an asset is recognised if the
amount of cash paid (which is a certain amount) exceeds the amount of tax expected to
be due (which is an uncertain amount).
(c) the timing of payment should not affect the amount of current tax expense recognised.
The Interpretations Committee understood that the reference to IAS 37 in paragraph 88 of
IAS 12 in respect of tax-related contingent liabilities and contingent assets may have been
understood by some to mean that IAS 37 applied to the recognition of such items. However,
the Interpretations Committee noted that paragraph 88 of IAS 12 provides guidance only on
disclosures required for such items, and that IAS 12, not IAS 37, provides the relevant
guidance on recognition, as described above.
On the basis of this analysis, the Interpretations Committee noted that sufficient guidance
exists. Consequently, the Interpretations Committee concluded that the agenda criteria are
not met and decided to remove from its agenda the issue of how current income tax, the
amount of which is uncertain, is recognised.]

Effective date
89 This Standard becomes operative for financial statements covering periods
beginning on or after 1 January 1998, except as specified in paragraph 91.
If an entity applies this Standard for financial statements covering periods
beginning before 1 January 1998, the entity shall disclose the fact it has
applied this Standard instead of IAS 12 Accounting for Taxes on Income, approved
in 1979.

90 This Standard supersedes IAS 12 Accounting for Taxes on Income, approved in

1979.

91 Paragraphs 52A, 52B, 65A, 81(i), 82A, 87A, 87B, 87C and the deletion of
paragraphs 3 and 50 become operative for annual financial statements1
covering periods beginning on or after 1 January 2001. Earlier adoption is
encouraged. If earlier adoption affects the financial statements, an entity shall
disclose that fact.

92 IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In
addition it amended paragraphs 23, 52, 58, 60, 62, 63, 65, 68C, 77 and 81,
deleted paragraph 61 and added paragraphs 61A, 62A and 77A. An entity shall
apply those amendments for annual periods beginning on or after 1 January

1 Paragraph 91 refers to ‘annual financial statements’ in line with more explicit language for
writing effective dates adopted in 1998. Paragraph 89 refers to ‘financial statements’.

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2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the
amendments shall be applied for that earlier period.

93 Paragraph 68 shall be applied prospectively from the effective date of IFRS 3

(as revised in 2008) to the recognition of deferred tax assets acquired in
business combinations.

94 Therefore, entities shall not adjust the accounting for prior business
combinations if tax benefits failed to satisfy the criteria for separate
recognition as of the acquisition date and are recognised after the acquisition
date, unless the benefits are recognised within the measurement period and
result from new information about facts and circumstances that existed at the
acquisition date. Other tax benefits recognised shall be recognised in profit or
loss (or, if this Standard so requires, outside profit or loss).

95 IFRS 3 (as revised in 2008) amended paragraphs 21 and 67 and added

paragraphs 32A and 81(j) and (k). An entity shall apply those amendments for
annual periods beginning on or after 1 July 2009. If an entity applies IFRS 3
(revised 2008) for an earlier period, the amendments shall also be applied for
that earlier period.

96 [Deleted]

97 [Deleted]

98 Paragraph 52 was renumbered as 51A, paragraph 10 and the examples

following paragraph 51A were amended, and paragraphs 51B and 51C and the
following example and paragraphs 51D, 51E and 99 were added by Deferred
Tax: Recovery of Underlying Assets, issued in December 2010. An entity shall apply
those amendments for annual periods beginning on or after 1 January 2012.
Earlier application is permitted. If an entity applies the amendments for an
earlier period, it shall disclose that fact.

98A IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 2, 15,
18(e), 24, 38, 39, 43–45, 81(f), 87 and 87C. An entity shall apply those
amendments when it applies IFRS 11.

98B Presentation of Items of Other Comprehensive Income (Amendments to IAS 1), issued
in June 2011, amended paragraph 77 and deleted paragraph 77A. An entity
shall apply those amendments when it applies IAS 1 as amended in June 2011.
[Refer: IAS 1 Basis for Conclusions paragraphs BC105A and BC105B]

98C Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in
October 2012, amended paragraphs 58 and 68C. An entity shall apply those
amendments for annual periods beginning on or after 1 January 2014. Earlier
application of Investment Entities is permitted. If an entity applies those
amendments earlier it shall also apply all amendments included in Investment
Entities at the same time.

98D [Deleted]

98E IFRS 15 Revenue from Contracts with Customers, issued in May 2014, amended
paragraph 59. An entity shall apply that amendment when it applies IFRS 15.

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98F IFRS 9, as issued in July 2014, amended paragraph 20 and deleted

paragraphs 96, 97 and 98D. An entity shall apply those amendments when it
applies IFRS 9.

98G IFRS 16, issued in January 2016, amended paragraph 20. An entity shall apply
that amendment when it applies IFRS 16.

98H Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12),
issued in January 2016, amended paragraph 29 and added paragraphs 27A,
29A and the example following paragraph 26. An entity shall apply those
amendments for annual periods beginning on or after 1 January 2017. Earlier
application is permitted. If an entity applies those amendments for an earlier
period, it shall disclose that fact. An entity shall apply those amendments
retrospectively in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. [Refer: IAS 8 paragraph 19(b) and IAS 12 Basis for
Conclusions paragraphs BC61 and BC62] However, on initial application of the
amendment, the change in the opening equity of the earliest comparative
period may be recognised in opening retained earnings (or in another
component of equity, as appropriate), without allocating the change between
opening retained earnings and other components of equity. [Refer: Basis for
Conclusions paragraph BC60] If an entity applies this relief, it shall disclose that
fact.
[Refer: Basis for Conclusions paragraph BC1A]

98I Annual Improvements to IFRS Standards 2015–2017 Cycle, issued in December

2017, added paragraph 57A and deleted paragraph 52B. An entity shall apply
those amendments for annual reporting periods beginning on or after
1 January 2019. Earlier application is permitted. If an entity applies those
amendments earlier, it shall disclose that fact. When an entity first applies
those amendments, it shall apply them to the income tax consequences of
dividends recognised on or after the beginning of the earliest comparative
period. [Refer: Basis for Conclusions paragraph BC70]

Withdrawal of SIC‑21
99 The amendments made by Deferred Tax: Recovery of Underlying Assets, issued in
December 2010, supersede SIC Interpretation 21 Income Taxes—Recovery of
Revalued Non‑Depreciable Assets.

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Approval by the Board of Deferred Tax: Recovery of Underlying

Assets (Amendments to IAS 12) issued in December 2010
Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12) was approved for
publication by the fifteen members of the International Accounting Standards Board.

Sir David Tweedie Chairman

Stephen Cooper
Philippe Danjou
Jan Engström
Patrick Finnegan
Amaro Luiz de Oliveira Gomes
Prabhakar Kalavacherla
Elke König
Patricia McConnell
Warren J McGregor
Paul Pacter
Darrel Scott
John T Smith
Tatsumi Yamada
Wei-Guo Zhang

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Approval by the Board of Recognition of Deferred Tax Assets for

Unrealised Losses (Amendments to IAS 12) issued in January
2016
Recognition of Deferred Tax Assets for Unrealised Losses was approved for issue by the fourteen
members of the International Accounting Standards Board.

Hans Hoogervorst Chairman

Ian Mackintosh Vice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Patrick Finnegan
Amaro Gomes
Gary Kabureck
Suzanne Lloyd
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang

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