IFRS Income Tax Accounting

IFRS for SMEs:
A less taxing standard?

On July 9, 2009, the IASB published the
International Financial Reporting Standard for Small and Medium-sized Entities
(“IFRS for SMEs” or “the standard”), a self-contained standard of about
230 pages designed to ease the burden of IFRS reporting for entities that do not have public accountability.
Globally, more jurisdictions may be encouraged to replace existing local
GAAP with IFRS for SMEs. As a result, it holds important implications for US companies with multinational subsidiaries.
The United Kingdom Accounting Standards
Board (UK ASB), for example, has already issued a Consultation Paper asking for comments on its proposal to replace existing
UK GAAP with IFRS by 2012.

2

PricewaterhouseCoopers

Overview of Income Tax Accounting Treatment

The Income Tax section of IFRS for SMEs contains several key provisions from the IASB’s Exposure Draft to amend
IAS 12 Income Taxes (the “Exposure Draft”). For example, IFRS for SMEs includes the guidance in the Exposure Draft for tax basis, uncertain tax positions and the use of a valuation allowance. IFRS for SMEs also includes several provisions from the existing standard, such as intraperiod allocation, tax rates to apply to distributions and balance sheet classification. A closer look at the provisions in the standard provides insight into the potential for increased complexity and diversity in some areas.

Tax basis
Under IFRS for SMEs, the tax basis of an asset is determined based on the tax consequences associated with selling the asset for its carrying amount. This definition is consistent with the Exposure Draft. However, it differs from existing IFRS and US GAAP. Under existing IFRS, tax basis is based on the expected manner of recovery, which may be through use, sale or a combination thereof. Under US GAAP, tax basis is based on the amount that will be deductible for tax purposes through use or

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