IASB solicits comments related to the accounting of deferred tax on leases and decommissioning obligations

On July17，2019, the International Accounting Standards Board (IASB) proposes to amend IAS 12 Income Taxes. The proposed amendments would require an entity to recognise deferred tax on initial recognition of particular transactions to the extent that the transaction gives rise to equal amounts of deferred tax assets and liabilities. The proposed amendments would apply to particular transactions for which an entity recognises both an asset and a liability, such as leases and decommissioning obligations. Accordingly, the IASB has published 'Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12)' that aim at clarifying how companies account for deferred tax on leases and decommissioning obligations. Comments are requested by Nov 14, 2019.

The main change proposed in ‘Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12)’ is a proposed exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption would not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of deferred tax assets and liabilities of the same amount. This is also explained in the newly inserted paragraph IAS 12.22A.
 
IAS12.15 has been amended as follows:

A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
(a) the initial recognition of goodwill; or
(b) the initial recognition of an asset or liability in a transaction which:
(i) is not a business combination;
(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss);
(iii) at the time of the transaction, does not give rise to equal amounts of taxable and deductible temporary differences

Newly inserted paragraph IAS 12.22A is as follows:

A transaction that is not a business combination may lead to the initial recognition of an asset and a liability and, at the time of the transaction, affect neither accounting profit nor taxable profit (tax loss). Equal amounts of taxable and deductible temporary differences may arise from the initial recognition of that asset and liability. In that situation, on initial recognition of the transaction, an entity recognises:
(a) a deferred tax asset for the deductible temporary difference to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.
(b) a deferred tax liability for the taxable temporary difference. However, the amount of the deferred tax liability shall not exceed the amount of the deferred tax asset recognised in accordance with IAS 12.22A(a).