14 October 2011

EFRAG's final letter on IAS 12 Income Tax – rebuttable presumption to determine the manner of recovery

In December 2010, the IASB issued Amendments to IAS 12 'Deferred Tax: Recovery of Underlying Assets' (‘the Amendments’). The Amendments introduce a ‘default’ single measurement attribute (in the form of a rebuttable presumption) to determine deferred taxes on investment property measured at fair value under IAS 40 'Investment Property', as if the carrying amount of the investment property will be recovered through sale.

IAS 12.51C (as amended) explains that the rebuttable presumption is rebutted if the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. If the presumption is rebutted, the requirements of paragraphs 51 and 51A shall be followed.

In September 2011, the Interpretations Committee received a request to clarify whether that presumption can be rebutted in cases other than the case described in paragraph 51C of the Amendments to IAS 12. The Interpretations Committee decided not to add this item to its agenda and noted that in its view paragraph 51C of IAS 12 (2010) is clear, and that diversity in practice on the rebuttal of the presumption should not emerge. However, it also observed that, if the presumption is rebutted, the resulting deferred tax should reflect recovery of the carrying amount entirely through use, rather than be based on any dual purpose analysis.

EFRAG believes that the wording for rejection is in effect an interpretation. In EFRAG’s view, rejection notices should not be written as though they were authoritative guidance and should not result in a change in accounting practice.  

Full paper

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