ED/ Ind AS/2018/02
Exposure Draft
Appendix C, Uncertainty over Income Tax Treatments to Ind AS
12, Income Taxes
(Last date for the comments: 19th February, 2018)
Issued by
Accounting Standards Board
The Institute of Chartered Accountants of India
ED/ Ind AS/2018/02
Exposure Draft
Appendix C, Uncertainty over Income Tax Treatments to Ind AS
12, Income Taxes
Following is the Exposure Draft of Appendix C, Uncertainty over Income Tax Treatments of Ind AS
12, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, for
comments.
The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if they
indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale
and, where applicable, provide a suggestion for alternative wording.
How to Comment
Comments should be submitted using one of the following methods, so as to receive not later than 19th
February, 2018:
1 Electronically: Click on the below mentioned option to submit a comment letter
or visit at the following link (Preferred method):
http://www.icai.org/comments/asb/
2 Email: Comments can be sent at commentsasb@icai.in
3 Postal: Secretary, Accounting Standards Board,
The Institute of Chartered Accountants of India,
ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi 110 002
Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to asb@icai.in.
ED/ Ind AS/2018/02
Appendix C, Uncertainty over Income Tax Treatments to Ind AS 12, Income
Taxes
Background
1 Ind AS 12, Income Taxes, specifies requirements for current and deferred tax assets and
liabilities. An entity applies the requirements in Ind AS 12 based on applicable tax laws.
2 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.
3 In this Appendix:
(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
4 This Appendix clarifies how to apply the recognition and measurement requirements in Ind
AS 12 when there is uncertainty over income tax treatments. In such a circumstance, an
entity shall recognise and measure its current or deferred tax asset or liability applying the
requirements in Ind AS 12 based on taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates determined applying this Appendix.
Issues
5 When there is uncertainty over income tax treatments, this Appendix 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
How an entity considers changes in facts and circumstances.
Accounting Principles
ED/ Ind AS/2018/02
Whether an entity considers uncertain tax treatments separately
6 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.
7 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 Appendix as referring
to the group of uncertain tax treatments considered together.
Examination by taxation authorities
8 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
9 An entity shall consider whether it is probable that a taxation authority will accept an
uncertain tax treatment.
10 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.
11 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.
12 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
ED/ Ind AS/2018/02
deferred tax.
Changes in facts and circumstances
13 An entity shall reassess a judgement or estimate required by this Appendix 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 A1A3 set out
guidance on changes in facts and circumstances.
14 An entity shall reflect the effect of a change in facts and circumstances or of new information
as a change in accounting estimate applying Ind AS 8, Accounting Policies, Changes in
Accounting Estimates and Errors. An entity shall apply Ind AS 10, Events after the
Reporting Period, to determine whether a change that occurs after the reporting period is an
adjusting or non-adjusting event.
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Application Guidance
This Application Guidance is an integral part of Appendix C and has the same authority as the other
parts of Appendix C.
Changes in facts and circumstances (paragraph 13)
A1 In applying paragraph 13 of this Appendix, 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.
A2 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
Appendix 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.
A3 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 Appendix.
Disclosure
A4 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 Ind AS 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 125129 of Ind AS 1.
A5 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 Ind AS 12.
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Effective date and transition
This Section is an integral part of Appendix C and has the same authority as the other parts of the
Appendix C.
Effective date
B1 An entity shall apply this Appendix for annual reporting periods beginning on or after April
1, 20191. Earlier application is permitted. If an entity applies this Appendix for an earlier
period, it shall disclose that fact.
Transition
B2 On initial application, an entity shall apply this Appendix either:
(a) Retrospectively applying Ind AS 8, if that is possible without the use of hindsight; or
(b) Retrospectively with the cumulative effect of initially applying the Appendix
recognised at the date of initial application. If an entity selects this transition approach,
it shall not restate comparative information. Instead, the entity shall recognise the
cumulative effect of initially applying the Appendix 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 Appendix.
1
Since this Appendix to Ind AS 12 will be notified by the Ministry of Corporate Affairs (MCA), the effective date as mentioned in
paragraph B1, is subject to the notification of MCA with the same effective date.
ED/ Ind AS/2018/02
Consequential Amendments
An entity shall apply these amendments when it applies Appendix C to Ind AS 12.
Amendment to Ind AS 101, First-time Adoption of Indian Accounting
Standards
Paragraph 39AF is added.
39AF Appendix C Uncertainty over Income Tax Treatments to Ind AS 12 added paragraph E8. An
entity shall apply that amendment when it applies Appendix C to Ind AS 12.
In Appendix E, paragraph E8 and related heading are added.
E1-E7 [Refer Appendix 1]
Uncertainty over income tax treatments
E8 A first-time adopter whose date of transition to Ind ASs is before the date of notification of
this Appendix may elect not to reflect the application of the Appendix C, Uncertainty over
Income Tax Treatments, to Ind AS 12, Income Taxes, in comparative information in its first
Ind AS financial statements. An entity that makes that election shall recognise the cumulative
effect of applying Appendix C to Ind AS 12 as an adjustment to the opening balance of
retained earnings (or other component of equity, as appropriate) at the beginning of its first
Ind AS reporting period.
In Appendix 1, paragraph 9 is amended.
9 Paragraphs E1-E7 of Appendix E of IFRS 1 provideson `Short-term exemptions from IFRSs',
however Ind AS 101 does not provide the above aforesaid short-term exemptions. In order to
maintain consistency with Appendix Paragraph numbers of IFRS 1, the same arethe Appendix
E is retained in Ind AS 101.
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