IFRS Tax accounting seminar - assets.kpmg · Tax law is complex and subject to interpretation ― entities need to evaluate tax uncertainties in applying IAS 12. Previous lack of

IFRS Tax accounting

KPMG 2019 IFRS Tax accounting seminar

—

November / December 2019

2© 2019 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.

Agenda for today

Welcome and introduction

Tax accounting – Recent developments

Outside basis differences

Effective tax rate reconciliation

Tax accounting – Recent developments


IFRIC 23 Uncertainty over Income tax treatments

IFRIC 23 is effective for annual periods beginning on or after 1 January 2019.

Tax law is complex and subject to interpretation ― entities need to evaluate tax uncertainties in applying IAS

12.

Previous lack of guidance in IAS 12 resulted in diversity in practice.

Determine if, when and how a tax uncertainty should be reflected in the financial statements.

IFRIC 23


What is an uncertain tax treatment?

Tax authority

All bodies that

decide whether

tax treatments

are acceptable

under tax law,

including courts.

Uncertain tax

treatment

A tax treatment for

which there is

uncertainty over

whether it would be

accepted by the

relevant tax authority

under tax law.

IFRIC 23


Effective date and transition

Effective for annual periods beginning on or after 1 January 2019.

permitted.

orRetrospectively under IAS 8, if possible

without using hindsight

Retrospectively by adjusting equity at the date of

initial application, without restating

comparatives

1 January 2018

Start of comparative period

1 January 2019

Start of year of initial application

Initially applied:

IFRIC 23


IFRIC 23, Uncertain tax positions, Effective 1 January 2019IFRIC 23

1

2

3

4

5

6

7

Identify uncertain tax positions.

Apply probable threshold.

Detection risk is not applied.

Use ‘most likely amount’ or ‘expected value’ method for measuring the tax uncertainty.

Reassess for changes in facts and circumstances and new information.

Determine whether a change occurring after the reporting period is an adjusting event.

Significant estimates need to be disclosed.


Question

The entity has been required to make a payment to the tax authority in respect of an uncertain tax treatment in a previously filed tax filing. The entity disputes the tax authority’s decision and plans to appeal, as they consider their position probable. Does the ‘virtually certain’ threshold need to be met to recognise the payment as an asset?

Yes: The entity recognises the payment as an expense in

profit or loss.

No: The entity recognises the payment as an asset in the statement of

financial position.

AA

BB

IFRIC 23


Measurement of uncertain tax positions (1)

The expected value should usually be taken if there is a range of possible outcomes

that are neither binary nor concentrated on one value.

Deductible amount EUR 5.000.000:

Deductible amount accepted Probability Expected value

5.000.000 20% 1.000.000

3.000.000 40% 1.200.000

2.000.000 30% 600.000

0 10% 0

100% 2.800.000

IFRIC 23


Measurement of uncertain tax positions (2)

The single most likely amount when binary or concentrated on one value.

Deductible amount EUR 5.000.000:

Most likely amount

40% 2.000.000

60% 3.000.000

Most likely amount --- > EUR 3.000.000

IFRIC 23


Summary IFRS 16

Balance SheetIAS 17

(Old Standard)IFRS 16

Financial

lease

Operating

leaseAll leases

Leased Asset (‘’right of use’’)

Lease Liability

Operating lease commitments

disclosure

P&LIAS 17

(Old standaard)IFRS 16

Financial

lease

Operating

leaseAll leases

Revenue

Cost of Goods Sold

Other operating expenses

Depreciation

Interest expense

Net Result before tax

IFRS 16 in short: All leases on - balance

IFRS 16


IFRS 16 leases also allowed for Dutch tax purposes?IFRS 16

― The accounting treatment under IFRS 16 is not allowed for Dutch tax purposes, as a result

of which deductible and taxable temporary differences could arise between the commercial

and tax books.

Source: ‘’ Fiscale moties en toezeggingen Tweede Kamer’, April; 2019; page 5

― These temporary differences generally result in the recognition of deferred tax assets and

liabilities.


IFRS 16-Lease transaction

Balance Sheet – Accounting

Debit Credit

Leased Asset (‘’right of use’’) 100

Lease Liability 100

Balance Sheet – Tax purposes

Debit Credit

Leased Asset (‘’right of use’’) 0

Lease Liability 0

Book-to-tax difference of 100

(temporary difference) for asset and

liability

Application of initial recognition exemption?

IFRS 16


Proposed amendments to IAS 12IFRS 16

Exposure Draft ED/2019/5 (July 2019)

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

15. Taxable temporary differences

A deferred tax liability shall be recognized 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; and

II. at the time of the transaction, affects neither

accounting profit nor taxable profit (tax loss); and

III. at the time of the transaction, does not give rise to

equal amounts of taxable and deductible temporary

differences.

24. Deductible temporary differences

A deferred tax asset shall be recognized 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

utilized, 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

b) at the time of the transaction, affects neither

accounting profit nor taxable profit (tax loss); and

c) at the time of the transaction, does not give rise to

equal amounts of taxable and deductible temporary

differences.


Main Dutch corporate tax developments – CIT Rates

Reduction of Dutch CIT rates in steps – enacted 28 December 2018

Tax plan 2020 – Proposal (presented on Budget day; Prinsjesdag)

Tax accounting implications:

― Deferred tax measured at enacted/substantively enacted tax rate

― Re-assessment of existing deferred taxes based on reversal schedule

― Backward tracing

Profit 2020 2021

> € 200K 25% 21,7%

Profit 2018 2019 2020 2021

≤ € 200K 20% 19% 16,5% 15%

> € 200K 25% 25% 22,55% 20,5%

CIT Rates


Recognising current and deferred tax – Backward TracingCIT Rates

Current and deferred tax is recognised consistently with the underlying transaction or event

to which it relates

Item recognised in profit or loss Item recognised in OCI/equity

Current and deferred tax recognised in

profit or loss

Current and deferred tax recognised in

OCI/equity

Key: OCI = other comprehensive income


Earnings stripping measures Earnings

stripping

Earnings stripping legislation (art. 15b

Dutch CITA) - Effective 1 January 2019Tax accounting implications

― Net borrowing costs will be deductible up to

the higher of

1. 30% of a taxpayer’s fiscal EBITDA; or

2. EUR 1 million.

― Non-deductible net borrowing costs can be

carried forward indefinitely

― Re-assessment DTA based on tax

forecasts

― Recognition of DTA for non-deductible

borrowing costs



Why is this relevant? Temporary

differences


Temporary differences Temporary

differences

Carrying amount of an asset is higher than

its tax base

Carrying amount of a liability is lower than

its tax base

Taxable temporary differences Deductible temporary differences

Deferred tax liability Deferred tax asset

Carrying amount of an asset is lower than

its tax base

Carrying amount of a liability is higher than

its tax base


Temporary differences Temporary

differences

Outside basis differences,

arising from temporary

differences on investments

in subsidiaries, branches

and associates and

interests in joint

arrangements.

Inside basis differences; arising

from temporary differences between

the carrying amounts of the

individual assets and/or liabilities of

subsidiary, branch or an interest in a

joint operation and the tax bases of

such assets and liabilities (‘’regular’’

temporary difference).


Inside basis differences Temporary

differences

Example

Company X holds subsidiary Y.

Subsidiary Y recognized an asset for

€ 1,000 in its financial statements,

related to capitalized R&D costs in

2019.

In the tax return of Company Y, the

€ 1,000 R&D costs are expensed at

once, in accordance with relevant tax

law. Hence, a taxable temporary

difference arises as the tax base of

the asset is € 0.

As a result, in the consolidated FS,

Company X accounts for the

temporary difference, resulting in a

DTL of € 200(1)

Accounting in accordance with IAS 12.15 for taxable temporary differences resulting in DTLs and IAS 12.24 for deductible temporary differences potentially resulting in DTAs.

Source: (1) Assuming a tax rate of 20%


Outside basis differences Temporary

differences

Example

Company X holds subsidiary Y,

which is accounted for using the

equity method. The tax base of

subsidiary Y is 0.

As a result of undistributed profits,

the equity value of subsidiary Y has

increased to 100. As a result, a

temporary difference of 100 has

arisen.

A deferred tax liability in relation to

the taxable temporary difference of

100 is recognized (at the level of

company X) if the recognition criteria

are met.

Accounting in accordance with IAS 12.39 for taxable temporary differences resulting in DTLs if criteria are met and IAS 12.44 for deductible temporary differences.


Recognition criteria for outside basis differences Temporary

differences

IAS 12.39: An entity shall recognise a deferred tax liability for all taxable temporary differencesassociated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:

b) it is probable that the

temporary difference will

not reverse in the

foreseeable future.

a) the parent, investor, joint

venturer or joint operator is

able to control the timing of

the reversal of the temporary

difference


Recognition criteria for outside basis differences Temporary

differences

IAS 12.44: An entity shall recognise a deferred tax asset for all deductible temporary differencesarising 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:

b) taxable profit will be

available against which

the temporary difference

can be utilised.

a) the temporary

difference will reverse

in the foreseeable

future.


Most common taxes in relation to outside basis differences Temporary

differences

Withholding taxes that arise upon

dividend distribution.

Capital gains taxes that arise upon

sale of the shares

Corporate income tax charge under

local tax rules if no (full) participation

exemption applies

High chance of applicability for non-EU subsidiaries!



X Holding

(tax base subsidiary

Y: 100)

Y Subsidiary

100%

In measuring the outside basis difference, consider local tax law AND applicable tax treaties / EU Law

If both criteria of IAS

12.39 are met, the

DTL of 75

representing the tax

claim upon

distribution of profit

is recognized.

X Holding Subsidiary

Y: 400Equity:

325

DTL: 75

No participation

exemption upon

distribution, 25% tax

payable by X on

distributed amount

300

Tax claim

25% of 300

= 75

Y SubEquity:

400

Cash: 400

Outside basis difference


Outside basis differences - consolidation

X Holding

(tax base subsidiary

Y: 100)

Y Subsidiary

100%

Outside basis differences are NOT eliminated upon consolidation.

X Holding Subsidiary

Y: 400Equity:

325

DTL:

75

No participation

exemption upon

distribution, 25% tax

payable by X on

distributed amount

300

Tax claim

25% of 300

= 75

Y SubEquity:

400

Cash: 400

X+Y Cons.Cash: 400 Equity:

325

DTL:

75


Wrap up

Outside basis differencesImpact on financial statements

― Outside basis differences arise from

temporary differences on investments in

subsidiaries, branches and associates and

interests in joint arrangements (IAS 12.38).

― Most common taxes in relation to outside

basis differences are withholding taxes,

capital gains tax and corporate income tax

in absence of participation exemptions.

― Outside basis differences are not

eliminated upon consolidation

― If the criteria within IAS 12.39 or IAS 12.44

are met, recognition of a deferred tax

liability or asset is required.

― In measuring the outside basis difference,

consider local tax law AND applicable tax

treaties / EU Law

Temporary

differences


Case 1 - Introduction Temporary

differences

K HoldingK Holding holds one subsidiary (accounted for under the equity method) named KW. K Holding controls the dividend

policy of KW and therefore controls the timing of the reversal of the temporary difference. The subsidiary made a profit

of € 1,000. The profit is not distributed to K Holding at year-end and it’s probable that it will be distributed next year.

Upon distribution 15% dividend tax is applicable.

Situation after distribution profit

K Holding

KW

850

150

100%

If distributed,

15% dividend

tax applicable

Tax authority


Case 1 – Cont’d

1. What is the nature of the difference between the tax base (at cost) and the carrying amount of the subsidiary related

to this profit?

A. Permanent difference

B. Outside basis difference

C. Inside basis difference

Temporary

differences

K Holding

B. Is correct, temporary differences associated with investments in subsidiaries, branches and associates, and interests

in joint arrangements, are generally referred to as outside basis differences (IAS 12.38).


Case 1 – Cont’d Temporary

differences

A. Is correct, K Holding recognizes the DTL of € 150 in its financial statements as

i) there is control; and

ii) the profit will be distributed in the foreseeable future.

2. Should Y recognize a DTL in relation to this € 1.000 profit?

A. Yes, for an amount of € 150.

B. Yes, for an amount of € 1,000.

C. No deferred tax is recognized.

K Holding

K Holding

KW

850

150100%

If distributed,

15% dividend

tax applicable

Tax authority


Case 2 - Introduction

Y(UK) has control over its fully owned subsidiary X (Australia). In 2019 X expects a profit of AUD 1,000. Assume that

upon payment of this AUD 1,000 as dividend to the United Kingdom, 15% Australian withholding tax is applicable which

is neither creditable nor deductible for Y against its corporate income tax. Y has not paid an interim dividend in 2019

and has no intention to demand for a dividend payment from X in 2020. Assume a UK tax rate of 20%.

Temporary

differences

X (Australia)

Y (UK)

X (Australia)

850

If distributed 15%

dividend tax

applicable


Case 2 – Cont’d

1. Please indicate which factor(s) is (are) relevant for the recognition of deferred tax for outside basis differences.

A. Ability of the parent to control the timing of the reversal of the temporary difference

B. Reversal of the temporary difference in the foreseeable future

C. Both A and B

D. None of the above

Temporary

differences

X (Australia)

C. Is correct. Deferred tax liabilities resulting from such differences shall be recognized in accordance with IAS 12.39

following IAS 12.15.

An entity shall recognize a DTL for all taxable temporary differences with investments in subsidiaries except to the

extent that both of the following conditions are satisfied:

a. the parent 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.


Case 2 – Cont’d

2. Should Y recognize a DTL in relation to this AUD 1.000 profit per 31 December 2019?

A. Yes, for an amount of AUD 150.

B. Yes, for an amount of AUD 200.

C. Yes, for an amount of AUD 1,000.

D. No deferred tax is recognized.

Temporary

differences

X (Australia)

D. Is correct. Y is assumed to have control over X and can therefore control the timing of the reversal of the temporary

difference. Furthermore, it is probable that the temporary difference will not reverse in the foreseeable future (for

example because X re-invests the proceeds), as no intention exists to distribute the profit of AUD 1,000 in 2020. As a

result, no DTL is recognized at 31 December 2019.

Y (UK)

X (Australia)

850

If distributed 15%

dividend tax

applicable


Case 3 - Introduction

Y holds an asset in a separate legal entity (‘’B’’) solely consisting of this single asset. B meets the criteria of IFRS 5 and

is therefore classified as an asset held for sale. After applying the measurement requirements in IFRS 5, the carrying

amount of the asset in the consolidated FS of Y is EUR 7,000. The tax base of the asset is EUR 5,000. When Y

disposes of the shares in B, an amount of EUR 8,000 will be deductible for tax purposes. Assume:

― Y’s (UK) tax rate is 20%.

― There will be sufficient taxable profit.

Temporary

differences

Y (UK)

Y (UK)

B (UK)


Case 3 – Cont’d

1. Is Y required to recognize deferred taxes?

A. Yes, Y should only recognize a DTL of EUR 400 for the taxable temporary difference.

B. Yes, Y should only recognize a DTA of EUR 200 for the deductible temporary difference.

C. Y is required to recognize two deferred positions. A DTL of EUR 400 for the taxable temporary difference and a DTA of EUR 200 for

the deductible temporary difference.

D. Y is required to recognize two deferred positions. A DTL of EUR 400 for the taxable temporary difference and a DTA of EUR 280 for

the deductible temporary difference.

Temporary

differences

Y (UK)


Case 3 – Cont’d

Y holds an asset in a separate legal entity (‘’B’’) solely consisting of this single asset. B meets the criteria of IFRS 5 and is therefore

classified as an asset held for sale. After applying the measurement requirements in IFRS 5, the carrying amount of the asset in the

consolidated FS of Y is EUR 7,000. The tax base of the asset is EUR 5,000. When Y disposes of the shares in B, an amount of EUR

8,000 will be deductible for tax purposes. Assume:

― Y’s (UK) tax rate is 20%.

― There will be sufficient taxable profit.

Temporary

differences

Y (UK)

D. Is correct. Y is required to recognize two deferred positions.

― Inside basis difference (IAS 12.15)

- Taxable temporary difference of EUR 7,000 -/- EUR 5,000 = EUR 2,000

- DTL of EUR 400 (EUR 2,000 * 20% = 400).

― Outside basis difference (IAS 12.39)

- Carrying amount of legal entity B is recalculated at EUR 6,600 (EUR 7,000 -/- EUR 400)

- Tax base of Y in B is EUR 8,000.

- Deductible temporary difference of EUR 8,000 -/- EUR 6,600 = EUR 1,400.

- DTA of EUR 280 (EUR 1,400 * 20%), considering a) reversal of deductible temporary difference in the foreseeable future; and b)

sufficient taxable profit.


Case 4 – Introduction

Y (Sri Lanka) is loss making for several years now. Management of Y has indicated to management of X (the

Netherlands) that, due to the recent terrorist attacks in Sri Lanka, room occupancy has collapsed and it is not expected

that recovery will follow within the next couple of years. Given these circumstances, management of X has decided to

liquidate the investment in Y.

In 2019, X will impair Y to EUR nil. The tax base of Y is EUR 1,000. The liquidation of Y will take some time due to legal

requirements that have to be met and management expects to finalize the liquidation in 2020. For Dutch tax purposes,

a so-called liquidation loss is tax deductible in the year the entity is dissolved / liquidated. Assume that the EUR 1,000

liquidation loss will be tax deductible. X is a very profitable company and it is expected that sufficient future taxable

profit is available. The applicable tax rate is 25%.

Temporary

differences

Y (Sri Lanka)

X (The

Netherlands)

Y

( Sri Lanka)


Case 4 – Cont’d Temporary

differences

Y (Sri Lanka)

1. What should be recognized in this case at 31 December 2019?

A. Is correct.

- The carrying amount of Y is EUR 0.

- The tax base of Y is EUR 1,000.

- The (deductible) temporary difference is EUR 1,000 (EUR 1,000 -/- EUR 0) at 31 December 2019.

- Recognition of DTA of EUR 250 (EUR 1,000 * 25%) at 31 December 2019, considering a) reversal of deductible

temporary difference in the foreseeable future (i.e. in 2020); and b) sufficient taxable profit.

A. A DTA of EUR 250.

B. A DTL of EUR 250.

C. No DTA or DTL has to be recognized at 31 December 2019.

Effective tax rate reconciliation


Why is the effective tax rate reconciliation important? ETR


OverviewETR

Effective tax rate =Income tax P&L (current and deferred)

Accounting pre-tax profit

Why effective tax rate ≠ applicable tax rate?

― Non-taxable income and non-deductible expenses.

― Changes in estimates (e.g. recoverability of deferred tax assets or uncertain tax positions) or tax rates.

― Tax rate in parents’ jurisdictions ≠ tax rate in subsidiaries’ jurisdictions. ≠


DisclosureETR

― Two approaches:

- Amount-to-amount

Tax income reconciled to

accounting income:

expressed in numbers

- Rate-to-rate

Tax income reconciled to

accounting income:

expressed in

percentages


Examples typical tax reconciliation itemsETR

Change in estimate about

the recoverability of

deferred tax asset

Non-taxable income

Non-deductible expenses Unrecognised tax losses

Change in applicable tax rate Foreign tax rates


No tax reconciliation itemsETR

― Regular reversal of temporary differences for which deferred tax

was recognised.

― Income taxes on items recognised outside profit or loss:

- Income taxes on items recognised in other comprehensive

income (OCI) or equity.

- Business combinations (deferred taxes recognised in

goodwill).


Group operating in multiple tax jurisdictionsETR

Determine applicable tax rate:

Domestic tax rate in the country in which the

entity is domiciled.

Aggregate separate reconciliations prepared

using the domestic rate in each individual

jurisdiction.

Domestic

tax rate

Aggregate

or


Subsidiaries in lower tax rate jurisdictionETR

Group G’s results Year 1 Year 2

Parent’s profit € 3,000 € 0

Subsidiary’s profit € 0 € 3,000

Current tax€ 900

(€ 3,000 X 30%)

€ 600

(€ 3,000 X 20%)

Under which approach would ‘subsidiary in lower tax rate jurisdiction’ be included in the tax reconciliation?

Group G

Parent

Country X: 30% tax rate

Subsidiary

Country Y: 20% tax rate


Approaches 1 and 2ETR

Year 1 Year 2

Profit before tax € 3,000 € 3,000

Tax using applicable tax rate (P:30%) € 900 € 900

Reconciliation:

- Subsidiaries in the group located in

jurisdictions with lower income tax

rate

€ 0 (€ 300)

Income taxes (total) € 900 € 600

Effective tax rate 30% 20%

Approach 1: Domestic tax rate in which P is

domiciled

Approach 2: Domestic tax rate applicable to

profits in individual jurisdictions

Year 1 Year 2


Tax using applicable tax rate

(P:30%, S:20%)

€ 900 € 600

Reconciliation: N/A N/A

Income taxes (total) € 900 € 600



Example 1: Utilisation of unrecognised tax losses ETR

Tax losses € 1,000; no

DTA recognised.

Year 1 Year 2

Pre-tax profit(1) € 200;

utilization of prior year tax

losses.

Tax rateManagement: Nil DTA

for unused tax losses

30%

What is the reconciling item? Year 2

Profit before tax € 200

Tax using applicable tax rate (30%) € 60

Reconciliation:

- Unrecognised tax losses ?

Income taxes (total) ?Note: (1) Accounting profit = tax profit, DTA: Deferred tax asset


Example 1: SolutionETR

Year 2



Reconciliation:

- Unrecognised tax losses (€ 60)

Income taxes (total) 0

Effective tax rate 0%

Applicable tax rate 30%

[€ 200 X 30%]

No Journal entry – Income taxes


Example 2: Utilisation of recognised unused tax lossesETR

― Tax losses € 1,000

― Tax losses DTA

recognised

Year 1 Year 2

― Pre-tax profit(1) € 200

― Utilise tax losses € 200

Tax rateManagement: Continue

to recognise DTA for

remaining € 800 tax

losses carry forward

30%

In Year 2, what is the reconciling item? Year 2



Reconciliation:


Income taxes (total) ?Note: (1) Accounting profit = tax profit



Year 2



Reconciliation:

- Unrecognised tax losses -

Income taxes (total) € 60

Effective tax rate 30%


M recognised a deferred tax asset in Year 1

for unused tax losses so the utilisation of the

deferred tax asset has no impact in year 2.

Debit Credit

Deferred tax

expense

€ 60

DTA € 60

Journal entry – Income taxes


Example 3: Change in estimate – tax lossesETR

Tax losses €

1,000; no DTA

recognised.

Year 1 Year 3

Pre-tax profit(1) €

200; utilise prior

year tax losses.

Tax rateManagement:

Year 2: No DTA

Year 3: DTA of € 180

(€ 600 * 30%)

30%

In year 3, what is the reconciling item? Year 3



Reconciliation:



Year 2

Pre-tax profit(1) €

200; utilise prior

year tax losses.



Year 3



Reconciliation:

Unrecognised tax losses

- Utilisation of unused tax losses (€ 60)

- Recognition of previously unrecognised

tax losses

(€ 180)

Income tax (total) (€ 180)

Effective tax rate (90%)


2. [€ 600 X 30%]

1. [€ 200 X 30%]

Debit Credit

DTA € 180

Deferred tax

expense

€ 180

Journal entry – recognition of previously unrecognised tax losses


Example 4: Tax rate changeETR

What is reconciling item (change in tax rate) in Year 1 and Year 2?

Year 1 Year 2

Profit before tax € 1000 € 1000


(30%)

€ 200

(20%)

Reconciliation:

- Change of tax rate ? ?


October Year 1:

Statutory tax

rate reduction

announcement

Years 1 and 2

pre-tax profit(1)

Enacted 1

January Year 2

30%20% € 1,000

― Deductible temporary difference of € 100

resulting in DTA € 30 (€ 100 x 30%) –

before tax rate reduction.

― Tax rate reduction is substantively enacted

by government announcement; DTA

reduced from € 30 to € 20.



Year 1 Year 2


Tax using applicable tax rate € 300

(30%)

€ 200

(20%)

Reconciliation:

- Change of tax rate € 10 -

Income tax (total) € 310 € 200


Applicable tax rate 30% 20%

In Country X, on announcement by the

government the reduced tax rate is substantially

enacted, and therefore P reduces the deferred tax

asset by € 10 from € 30 to € 20.

Although the change in the tax rate does not effect

current taxes for Year 1, it affects deferred taxes,

because they are measured at the rate expected

to apply to the period when the temporary

difference reverses.

In Year 2, the applicable tax rate is 20%: no

reconciling item.

Debit Credit

Deferred tax

expense

€ 10

DTA € 10

Journal entry – change of tax rate


Key points to remember!ETR

Transparent disclosure enables users to understand the relationship between accounting profit and

tax expense.

Typical reconciling items include non-taxable income and non-deductible expenses and changes in

tax rates or differences in tax rates applied to entities in the group.

Reconciling items should not include changes in temporary difference for which deferred tax is

recognised, and taxes recognised outside profit and loss.

Thank you for your presence today! If you have any questions, please feel free to contact one of our Tax accounting specialists!

Arthur PlantfeberTax accounting specialist CMAAS

[email protected]

Phone +31 (0)20 656 4614

Mobile +31 (0)6 1081 9715

Stefan PaantjensTax accounting specialist CMAAS

[email protected]

Phone +31 (0)20 656 7404

Mobile +31 (0)6 2554 1029

mailto:[email protected]

mailto:[email protected]

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Documents

IFRS Tax accounting seminar - assets.kpmg · Tax law is complex and subject to interpretation ― entities need to evaluate tax uncertainties in applying IAS 12. Previous lack of