Levies

In May 2013 the International Accounting Standards Board issued IFRIC 21 Levies. It was
developed by the Interpretations Committee.

IFRIC Interpretation 21 Levies (IFRIC 21) is set out in paragraphs 1–14 and Appendix A.
IFRIC 21 is accompanied by Illustrative Examples and a Basis for Conclusions. The
scope and authority of Interpretations are set out in the Preface of IFRS Standards.

IFRIC Interpretation 21
Levies

References

• IAS 1 Presentation of Financial Statements
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 12 Income Taxes
• IAS 20 Accounting for Governments Grants and Disclosures of Government Assistance
• IAS 24 Related Party Disclosures
• IAS 34 Interim Financial Reporting
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
• IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste Electrical and
Electronic Equipment

Background

A government may impose a levy on an entity. The IFRS Interpretations
Committee received requests for guidance on the accounting for levies in the
financial statements of the entity that is paying the levy. The question relates
to when to recognize a liability to pay a levy that is accounted for in
accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Scope

This Interpretation addresses the accounting for a liability to pay a levy if that
liability is within the scope of IAS 37. It also addresses the accounting for a
liability to pay a levy whose timing and amount is certain.
This Interpretation does not address the accounting for the costs that arise
from recognizing a liability to pay a levy. Entities should apply other
Standards to decide whether the recognition of a liability to pay a levy gives
rise to an asset or an expense.
For the purposes of this Interpretation, a levy is an outflow of resources
embodying economic benefits that is imposed by governments on entities in
accordance with legislation (ie laws and/or regulations), other than:
(a) those outflows of resources that are within the scope of other
Standards (such as income taxes that are within the scope of IAS 12
Income Taxes); and
(b) fines or other penalties that are imposed for breaches of the
legislation.
‘Government’ refers to government, government agencies and similar bodies
whether local, national or international.

A payment made by an entity for the acquisition of an asset, or for the
rendering of services under a contractual agreement with a government, does
not meet the definition of a levy.
An entity is not required to apply this Interpretation to liabilities that arise
from emissions trading schemes.

Issues

To clarify the accounting for a liability to pay a levy, this Interpretation
addresses the following issues:
(a) what is the obligating event that gives rise to the recognition of a
liability to pay a levy?
(b) does economic compulsion to continue to operate in a future period
create a constructive obligation to pay a levy that will be triggered by
operating in that future period?
(c) does the going concern assumption imply that an entity has a present
obligation to pay a levy that will be triggered by operating in a future
period?
(d) does the recognition of a liability to pay a levy arise at a point in time
or does it, in some circumstances, arise progressively over time?
(e) what is the obligating event that gives rise to the recognition of a
liability to pay a levy that is triggered if a minimum threshold is
reached?
(f) are the principles for recognizing in the annual financial statements
and in the interim financial report a liability to pay a levy the same?

Consensus

The obligating event that gives rise to a liability to pay a levy is the activity
that triggers the payment of the levy, as identified by the legislation. For
example, if the activity that triggers the payment of the levy is the generation
of revenue in the current period and the calculation of that levy is based on
the revenue that was generated in a previous period, the obligating event for
that levy is the generation of revenue in the current period. The generation of
revenue in the previous period is necessary, but not sufficient, to create a
present obligation.
An entity does not have a constructive obligation to pay a levy that will be
triggered by operating in a future period as a result of the entity being
economically compelled to continue to operate in that future period.
The preparation of financial statements under the going concern assumption
does not imply that an entity has a present obligation to pay a levy that will be
triggered by operating in a future period.

The liability to pay a levy is recognized progressively if the obligating event
occurs over a period of time (ie if the activity that triggers the payment of the
levy, as identified by the legislation, occurs over a period of time). For
example, if the obligating event is the generation of revenue over a period of
time, the corresponding liability is recognized as the entity generates that
revenue.
If an obligation to pay a levy is triggered when a minimum threshold is
reached, the accounting for the liability that arises from that obligation shall
be consistent with the principles established in paragraphs 8–14 of this
Interpretation (in particular, paragraphs 8 and 11). For example, if the
obligating event is the reaching of a minimum activity threshold (such as a
minimum amount of revenue or sales generated or outputs produced), the
corresponding liability is recognized when that minimum activity threshold is
reached.
An entity shall apply the same recognition principles in the interim financial
report that it applies in the annual financial statements. As a result, in the
interim financial report, a liability to pay a levy:
(a) shall not be recognized if there is no present obligation to pay the levy
at the end of the interim reporting period; and
(b) shall be recognized if a present obligation to pay the levy exists at the
end of the interim reporting period.
An entity shall recognize an asset if it has prepaid a levy but does not yet have
a present obligation to pay that levy.

Appendix A
Effective date and transition

This appendix is an integral part of the Interpretation and has the same authority as the other parts
of the Interpretation.
An entity shall apply this Interpretation for annual periods beginning on or
after 1 January 2014. Earlier application is permitted. If an entity applies this
Interpretation for an earlier period, it shall disclose that fact.
Changes in accounting policies resulting from the initial application of this
Interpretation shall be accounted for retrospectively in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.