05 June 2009

EFRAG's Draft Comment Letter on the IASB's ED Income Taxes

EFRAG has various concerns with the proposals in the ED, and, overall is not convinced that they represent an improvement to the accounting in existing IAS 12.

EFRAG is very concerned that certain proposals are excessively rules-based and lack underlying conceptual rationale. The ED forsakes the benefits of having an amended income tax standard that is based on clearly articulated principles that are workable in “real life”, and which entities can apply to their particular tax situation, EFRAG argues.

Although EFRAG supports convergence between IFRS and US GAAP, it does not support convergence if the changes to IFRS would not improve financial reporting.

The ED is the outcome of a joint project with the FASB, and was originally described as a short-term convergence project. The ED aims at reducing some of the existing differences between IAS 12 and SFAS 109 and addressing some aspects of existing IAS 12.

EFRAG main concerns:

Ø       to define the tax basis of an asset or a liability to be determined based on a consequence of sale or settlement at the reporting date.

Ø       the ED looks at the notion of management expectations in a way that is internally inconsistent with other aspects of the ED.

Ø       the proposals in the ED aimed at eliminating the “initial recognition” exception, are overly complex.

Ø       The ED retains an exception for temporary differences that arise on foreign subsidiaries and joint ventures but removes the existing exception for all domestic subsidiaries.

Ø       the requirements on the allocation of tax expense/benefit are overly prescriptive, add undue complexity to the way tax allocation is carried under IAS 12, and will not significantly improve the information that will be provided

Ø       the detailed rules for recognising and measuring tax assets are overly complex and rules-based. We would recommend a more principle based approach.

Deadline for comments is 3 July 2009.

Document

© EFRAG - European Financial Reporting Advisory Group