Ehud M. Lurie C.P.A. (Isr.) 46 Hadaliot St. Ramat Poleg Netanya 42650 Israel Miss Anne McGeachin Senior Project Manager International Accounting Standards Board 30 Cannon St. London EC4M 6XH United Kingdom 2 July 2009 Dear Miss McGeachin
Comment to Exposure Draft Income Tax
I appreciate the opportunity to comment on IASB's Exposure Draft Income Tax. This letter expresses my personal views based on my experience with a very specific issue: deferred taxes arising from the differences that result from there being a functional currency and another currency that applies for corporate tax purposes. In most countries, the currency that applies for corporate tax purposes is the same as the country’s local currency. However, where the functional currency is different, every change in the rate of exchange between these two currencies creates differences in asset values and future depreciation that results in deferred tax for the full difference between the said values. The current world economy is characterized by very high volatility among currencies, which is significant even during such a short time as one calendar quarter. It is common for the deferred taxes that result from this functional currency issue to have a significant effect on the P&L in both directions in several subsequent quarters. I believe that such an effect on the net results of a reporting entity is unreasonable and deviates from the true economic reality. It is important to emphasize that according to IAS 21, the differences in the net asset value arising from the translation of financial statements from functional currency to the currency of the consolidated statements are written to Funds from Translation Differences and the impact on the P&L is effective only in the event the asset is materialized. I propose that the same approach be implemented with for deferred taxes, and to record them against the equity until they are used in each period. Such an approach will prevent the unnecessary...
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