Uncertainty over Income Tax Treatments

In May 2017, the International Accounting Standards Board (Board) issued IFRIC 23
Uncertainty over Income Tax Treatments. It was developed by the IFRS Interpretations
Committee.

IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23) is set out in paragraphs 1–14
and Appendices A, B and C. IFRIC 23 is accompanied by Illustrative Examples and a
Basis for Conclusions. The scope and authority of Interpretations are set out in
the Preface to IFRS Standards.

IFRIC 23
Uncertainty over Income Tax Treatments

References

• IAS 1 Presentation of Financial Statements
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 10 Events after the Reporting Period
• IAS 12 Income Taxes

Background

IAS 12 Income Taxes specifies requirements for current and deferred tax assets
and liabilities. An entity applies the requirements in IAS 12 based on
applicable tax laws.
It may be unclear how tax law applies to a particular transaction or
circumstance. The acceptability of a particular tax treatment under tax law
may not be known until the relevant taxation authority or a court takes a
decision in the future. Consequently, a dispute or examination of a particular
tax treatment by the taxation authority may affect an entity’s accounting for a
current or deferred tax asset or liability.
In this Interpretation:
(a) ‘tax treatments’ refers to the treatments used by an entity or that it
plans to use in its income tax filings.
(b) ‘taxation authority’ refers to the body or bodies that decide whether
tax treatments are acceptable under tax law. This might include a
court.
(c) an ‘uncertain tax treatment’ is a tax treatment for which there is
uncertainty over whether the relevant taxation authority will accept
the tax treatment under tax law. For example, an entity’s decision not
to submit any income tax filing in a tax jurisdiction, or not to include
particular income in taxable profit, is an uncertain tax treatment if its
acceptability is uncertain under tax law.

Scope

This Interpretation clarifies how to apply the recognition and measurement
requirements in IAS 12 when there is uncertainty over income tax treatments.
In such a circumstance, an entity shall recognize and measure its current or
deferred tax asset or liability applying the requirements in IAS 12 based on
taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
tax rates determined applying this Interpretation.

Issues

When there is uncertainty over income tax treatments, this Interpretation
addresses:
(a) whether an entity considers uncertain tax treatments separately;
(b) the assumptions an entity makes about the examination of tax
treatments by taxation authorities;
(c) how an entity determines taxable profit (tax loss), tax bases, unused
tax losses, unused tax credits and tax rates; and
(d) how an entity considers changes in facts and circumstances.

Consensus
Whether an entity considers uncertain tax treatments
separately

An entity shall determine whether to consider each uncertain tax treatment
separately or together with one or more other uncertain tax treatments based
on which approach better predicts the resolution of the uncertainty. In
determining the approach that better predicts the resolution of the
uncertainty, an entity might consider, for example, (a) how it prepares its
income tax filings and supports tax treatments; or (b) how the entity expects
the taxation authority to make its examination and resolve issues that might
arise from that examination.
If, applying paragraph 6, an entity considers more than one uncertain tax
treatment together, the entity shall read references to an ‘uncertain tax
treatment’ in this Interpretation as referring to the group of uncertain tax
treatments considered together.

Examination by taxation authorities

In assessing whether and how an uncertain tax treatment affects the
determination of taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits and tax rates, an entity shall assume that a taxation authority will
examine amounts it has a right to examine and have full knowledge of all
related information when making those examinations.

Determination of taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates

An entity shall consider whether it is probable that a taxation authority will
accept an uncertain tax treatment.
If an entity concludes it is probable that the taxation authority will accept an
uncertain tax treatment, the entity shall determine the taxable profit (tax
loss), tax bases, unused tax losses, unused tax credits or tax rates consistently
with the tax treatment used or planned to be used in its income tax filings.

If an entity concludes it is not probable that the taxation authority will accept
an uncertain tax treatment, the entity shall reflect the effect of uncertainty in
determining the related taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits or tax rates. An entity shall reflect the effect of uncertainty
for each uncertain tax treatment by using either of the following methods,
depending on which method the entity expects to better predict the resolution
of the uncertainty:
(a) the most likely amount—the single most likely amount in a range of
possible outcomes. The most likely amount may better predict the
resolution of the uncertainty if the possible outcomes are binary or are
concentrated on one value.
(b) the expected value—the sum of the probability-weighted amounts in a
range of possible outcomes. The expected value may better predict the
resolution of the uncertainty if there is a range of possible outcomes
that are neither binary nor concentrated on one value.
If an uncertain tax treatment affects current tax and deferred tax (for
example, if it affects both taxable profit used to determine current tax and tax
bases used to determine deferred tax), an entity shall make consistent
judgements and estimates for both current tax and deferred tax.

Changes in facts and circumstances

An entity shall reassess a judgement or estimate required by this
Interpretation if the facts and circumstances on which the judgement or
estimate was based change or as a result of new information that affects the
judgement or estimate. For example, a change in facts and circumstances
might change an entity’s conclusions about the acceptability of a tax
treatment or the entity’s estimate of the effect of uncertainty, or both.
Paragraphs A1–A3 set out guidance on changes in facts and circumstances.
An entity shall reflect the effect of a change in facts and circumstances or of
new information as a change in accounting estimate applying IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. An entity shall apply IAS 10
Events after the Reporting Period to determine whether a change that occurs after
the reporting period is an adjusting or non-adjusting event.

Appendix A
Application Guidance

This appendix is an integral part of IFRIC 23 and has the same authority as the other parts of
IFRIC 23.

Changes in facts and circumstances (paragraph 13)

In applying paragraph 13 of this Interpretation, an entity shall assess the
relevance and effect of a change in facts and circumstances or of new
information in the context of applicable tax laws. For example, a particular
event might result in the reassessment of a judgement or estimate made for
one tax treatment but not another, if those tax treatments are subject to
different tax laws.
Examples of changes in facts and circumstances or new information that,
depending on the circumstances, can result in the reassessment of a
judgement or estimate required by this Interpretation include, but are not
limited to, the following:
(a) examinations or actions by a taxation authority. For example:
(i) agreement or disagreement by the taxation authority with the
tax treatment or a similar tax treatment used by the entity;
(ii) information that the taxation authority has agreed or disagreed
with a similar tax treatment used by another entity; and
(iii) information about the amount received or paid to settle a
similar tax treatment.

(b) changes in rules established by a taxation authority.
(c) the expiry of a taxation authority’s right to examine or re-examine a
tax treatment.
The absence of agreement or disagreement by a taxation authority with a tax
treatment, in isolation, is unlikely to constitute a change in facts and
circumstances or new information that affects the judgements and estimates
required by this Interpretation.

Disclosure

When there is uncertainty over income tax treatments, an entity shall
determine whether to disclose:
(a) judgements made in determining taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates applying
paragraph 122 of IAS 1 Presentation of Financial Statements; and
(b) information about the assumptions and estimates made in
determining taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates applying paragraphs 125–129 of IAS 1.

If an entity concludes it is probable that a taxation authority will accept an
uncertain tax treatment, the entity shall determine whether to disclose the
potential effect of the uncertainty as a tax-related contingency applying
paragraph 88 of IAS 12.

Appendix B
Effective date and transition

This appendix is an integral part of IFRIC 23 and has the same authority as the other parts of
IFRIC 23.

Effective date

An entity shall apply this Interpretation for annual reporting periods
beginning on or after 1 January 2019. Earlier application is permitted. If an
entity applies this Interpretation for an earlier period, it shall disclose that
fact.

Transition

On initial application, an entity shall apply this Interpretation either:
(a) retrospectively applying IAS 8, if that is possible without the use of
hindsight; or
(b) retrospectively with the cumulative effect of initially applying the
Interpretation recognized at the date of initial application. If an entity
selects this transition approach, it shall not restate comparative
information. Instead, the entity shall recognize the cumulative effect
of initially applying the Interpretation as an adjustment to the opening
balance of retained earnings (or other component of equity, as
appropriate). The date of initial application is the beginning of the
annual reporting period in which an entity first applies this
Interpretation.

Appendix C

An entity shall apply the amendment in this Appendix when it applies IFRIC 23.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2017 have been
incorporated into the text of the relevant Standards included in this volume.