23 October 2015

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Uncertainty over income tax treatments

Draft IFRIC aims to reduce diversity

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A new draft IFRIC seeks to clarify the accounting for income tax treatments that have yet to be accepted by tax authorities, whilst also aiming to enhance transparency.The impact of the proposals will depend on your current accounting. While we welcome the greater clarity and transparency, this is a sensitive issue that has generated much controversy. We urge you to read the proposals and participate in the debate.

Reflecting tax uncertainty in financial statements

Sanel TomlinsonKPMG’s global IFRS income taxes leader

2© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

What’s the issue?

So how do you reflect uncertainty in accounting for

income tax?

Tax is a sensitive topic, triggering debate about tax transparency both within and beyond the

board room

Tax

3© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The proposals1

4© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The proposalsWhose perspective?

Users of financial statements

Tax authorities

The proposals focus on…

5© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The proposalsWhen would you provide for uncertainty?

No:

Yes: =

≠

Assume that the tax authority would have full knowledge of all relevant information

Is it probablethat the tax

authority would accept

the treatment?

6© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The proposalsHow would you measure uncertainty?

If it’s not probablethat the tax authority

would accept the treatment, reflect

that uncertainty using…

the expected value

…whichever provides a better prediction

the most likely amount

or

7© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The proposalsWhat happens later on?

Specific guidance would be applied,

based on…new evidence

such as inspections, court cases, clarifications

If circumstances change, you’d need to update the amount in the financial statements

the time limit for tax inspections

8© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The impactsAccounting and disclosures2

9© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The impactsAccounting

Depending on your current

accounting and jurisdiction… Tax inspections may not give visibility

It may be more complex to estimate the amount of income tax if various taxes are assessed together

Your current practice may change You may need to increase the tax liability or recognise an asset. The timing of derecognition may also change

10© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Users may expect moremeaningful disclosures

about…

…albeit under existing disclosure requirements

Judgements made

Potential impact of uncertainties not reflected

Assumptions and other estimates used

The impactsDisclosures

11© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Transition options and timeline3

12© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

What are the proposed transition options?

1 January 20X6Start of

comparative period

1 January 20X7Start of year of

initial application

You would have a choice between:

on initial application, adjusting equity

without adjusting comparative information

retrospective applicationunder IAS 8

or

13© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

21 October 2015IFRS IC

proposals issued

19 January 2016Comment deadline

Effective dateTo be determined

Timeline

14© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Next steps

Read the proposals Talk to your tax specialists and

advisers

Comment on the proposals by

19 January 2016

© 2015 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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