The need for IFRS 12 income taxes. Recognition of deferred tax liabilities and deferred tax assets
Introduction
Basic elements of the current tax
Deferred taxes
Confession
Reflection in reporting
Disclosure
List of used literature
Introduction
IFRS 12 is devoted to the reflection of income taxes in accounting and reporting. In accordance with the standard, accounting for income tax calculations involves reflecting the tax consequences arising in the reporting and subsequent periods of such facts of economic life as:
Future recovery of the carrying amount of assets;
Business transactions and other events recognized in the financial statements.
The procedure for reflecting income taxes in the accounting and reporting of Russian companies is defined in the Accounting Regulations “Accounting for income tax calculations”, approved by Order of the Ministry of Finance of Russia dated November 19, 2002 No. 114n.
According to IFRS 12, income taxes are taxes calculated on the basis of profits established in accordance with both national and foreign laws, including taxes levied at source of payment, which are paid by subsidiaries, associates and joint ventures when distributing profits to the benefit of reporting company. PBU 18/02 considers exclusively income tax paid in the Russian Federation.
The profit (loss) indicator determined for tax calculation purposes, as a rule, does not coincide with the profit (loss) indicator reflected in the financial statements. In this regard, it is necessary to distinguish between accounting and taxable profit.
Accounting profit is the profit (loss) for the reporting period before deducting income tax expenses. The indicator of accounting profit (profit before tax) is reflected as a separate line in the income statement.
Taxable profit (loss) is the amount of profit (Loss) for the period, determined in accordance with the tax rules, on the basis of which the profit tax payable (reimbursement) is calculated. This indicator is reflected in the income tax return.
When calculating income taxes, taxable income is multiplied by the applicable income tax rate, which is the tax rate established in accordance with tax laws and in effect for the relevant accounting period. The applicable income tax rate is also reflected in the return.
Basic elements of current tax
Current tax is the amount of income taxes payable (reimbursable) based on taxable profit (tax loss) for the period. It can be calculated as follows:
TN = C * NP
where C is the applicable income tax rate;
NP – taxable profit (loss).
The current tax is reflected in the tax return as the amount payable (reimbursable) for the reporting period and can be either positive or negative. The current tax should be noted from the current debt to the budget for income tax reflected in the accounting accounts. In particular, according to the legislation of a number of countries, including Russia, if a company receives a loss during a tax period, it does not have the right to a refund from the budget of the tax calculated on the basis of such a loss. In this case, the current tax will be a negative value, while in accounting the budget debt to the company will not be accrued.
According to IFRS 12, current tax consists of current tax expense and deferred income tax expense:
TN = RTN + RON
where RTN is the expense (income) for the current tax;
RON – deferred tax expense (income).
PBU 18/02 identifies a larger number of components of the current tax. In accordance with paragraph 21 of PBU 18/02, current income tax is the amount of actual tax determined based on the amount of conditional income (expense), adjusted for the amount of permanent tax liabilities, deferred tax assets and liabilities of the reporting period:
TN = UR + PNO + IOAN – IUN
where UR is the conditional income tax expense (income);
PNO – permanent tax liability;
IAON – change in deferred tax assets for the reporting period;
Let's consider the components of the current tax provided for by PBU 18/02.
Conditional income tax expense (income) is the amount of tax determined on the basis of accounting profit (loss) and reflected in accounting regardless of the amount of taxable profit.
Conditional expense (income) is calculated using the formula:
UR = C * BP
BP – accounting profit (loss) for the reporting period.
According to clause 20 of PBU 18/02, the conditional expense is taken into account in accounting in a separate sub-account to the profit and loss account. IFRS 12 does not require that this indicator be separately reflected in the accounting accounts. However, in accordance with IFRS 12, in the explanatory note, the contingent expense indicator can be reflected in a numerical reconciliation between the actual income tax expense and accounting profit.
A permanent tax liability is an amount that leads to an increase in income tax payments in a given reporting period.
PNO is calculated using the formula
PNO = C * PR
where C is the applicable income tax rate;
PR - permanent differences representing income (expenses) that form accounting profit (loss), but are never taken into account when calculating taxable profit.
IFRS 12 does not introduce the concepts of PR and PNO, considering PNO as part of the expense for the current income tax (RTN)
RTN = UR + PNO
where UR is a conditional expense (conditional income) for income tax;
PNO is a permanent tax liability.
Deferred tax expense can be presented as the change in deferred tax assets and liabilities for the period as follows:
RON = IOAN – IUN
where IOAN is the change in deferred tax assets for the reporting period;
UNI – change in deferred tax liabilities for the reporting period.
Comparing the expressions for calculating the current tax provided for by IFRS 12 and PBU 18/02, you can see that by substituting the above expressions for calculating RTN and RON into formula 3, we get formula 2. Thus, IFRS 12 and PBU 18/02 interpret “current tax” indicator.
Deferred taxes
When an entity recognizes an asset or liability, it expects to recover its cost in the current or subsequent reporting periods. If such recovery would result in future increases or decreases in income tax payments, the entity must recognize a deferred tax liability or asset in the manner and on the terms specified in IFRS 12.
At the same time, for each asset recognized as of the reporting date, the tax base indicator is determined. The tax base is an amount characterizing the tax consequences of repayment (reimbursement) of a certain asset (liability).
The tax base of an asset is the amount that, upon reimbursement of the asset's book value, will be recognized as an expense for tax purposes, that is, will reduce taxable profit. The tax base of a liability is its carrying amount less any amounts that would be recognized as an expense for tax purposes when the liability is settled.
The tax base of an asset (liability) may be equal to its carrying amount, in particular when:
The accrued expense was taken to reduce the taxable profit of the organization in the current or previous tax periods;
Accrued expenses will never be accepted for tax purposes;
Accrued income will never be subject to income tax.
The accounts payable on the loan is CU5,000. Repayment of the loan will have no tax consequences. The tax base of the loan liability is CU 5,000.
Individual items have a tax base, but are not recognized as assets or liabilities on the balance sheet. For example, research and development expenses are recognized as an expense when determining accounting profit for the period in which they are incurred, but may be taken as a tax expense when determining tax profit in subsequent accounting periods.
If difficulties arise in determining the tax base of an asset (liability), the following general principle on which IFRS 12 is based can be used as a guide: an entity should, with certain exceptions, recognize a deferred tax liability (asset) if the carrying amount of the asset is recovered (settled). (liabilities) will result in an increase (decrease) in tax payments compared to what they would be if such reimbursement (repayment) did not have tax consequences.
PBU 18/02 does not contain a definition of the tax base, since when calculating deferred taxes it is based on the income statement approach, which involves an analysis of profits that form accounting profit in one and taxable profit in another reporting period.
Under IFRS 12, differences between the carrying amount of an asset or liability as reported on the balance sheet and its tax base are called temporary differences.
PBU 18/02 defines temporary differences as income (expenses) that form accounting profit in one reporting period.
Temporary differences are taxable and deductible.
Taxable temporary differences are temporary differences that give rise to taxable amounts in future periods when the carrying amount of the asset or liability is recovered.
IFRS 12 “Income Taxes” provides accounting rules and a general procedure for reflecting income tax calculations in financial statements. This standard applies to all domestic and foreign taxes based on income tax.
The main question in income tax accounting is: how to take into account not only current, but also future tax liabilities that will arise as a result of the recovery of the value of assets or the repayment of liabilities included in the balance sheet as of the reporting date? For this purpose, a deferred tax mechanism is used. Let's look at the main terms and definitions of IFRS 12.
Accounting profit means the net profit or loss for the period before deducting tax expenses.
Taxable profit (tax loss) represents profit (loss) for the period, determined in accordance with the rules established by the tax authorities, in respect of which income tax is paid (reimbursed).
Current taxes- this is the amount of income taxes payable (reimbursable) in relation to taxable profit (taxable loss) for the period.
Deferred tax liabilities consist of income taxes payable in future periods in connection with taxable temporary differences.
Deferred tax assets represent amounts of income taxes recoverable in future periods due to:
With deductible time differences;
Unaccepted tax losses carried forward;
Unused tax credits carried forward.
Temporary differences are the differences between the carrying amount of an asset or liability and their tax base. Please note that temporary differences can either increase or decrease your tax liability. Based on this, temporary differences are divided into differences that increase tax liabilities (taxable) and decrease tax liabilities (deductible).
Thus, temporary differences may be:
Taxable, i.e. giving rise to taxable amounts in determining taxable profit (tax loss) for future periods when the carrying amount of the asset or liability is recovered or settled;
Deductible, i.e. they result in deductions in determining the taxable profit (taxable loss) of future periods when the carrying amount of the relevant asset or liability is recovered or settled.
Tax base of the asset or liability represents the amount of that asset or liability accepted for tax purposes.
It should be noted that the tax base of an asset can be interpreted as an amount that reduces the amount of economic benefits that will be received by the enterprise as a result of settlement or receipt of the book value of the asset. If the economic benefits are not subject to taxation, then the tax base of the asset will coincide with its carrying amount.
Example. For accounting purposes, an item of fixed assets worth $300 thousand has a useful life of five years, and for tax purposes - three years. The residual value of the object according to the balance sheet at the end of the second year is equal to 180 thousand dollars, and the tax base is 100 thousand dollars. The deferred tax liability at an income tax rate of 30% at the end of the second year will be 24 thousand dollars ( 180,000 - 100,000) x 30%. The income statement will show the amount of 12 thousand dollars (the difference between the amount of the tax liability at the end of the second period and the amount of the accumulated liability for the period).
last period: 24,000 - 12,000 =12,000).
The taxable base of a liability is determined as its carrying amount minus the amount that reduces the taxable base for income taxes in future periods. In the event of deferred income, the tax base of the liability is calculated by subtracting from the book value amounts that will not be subject to taxation in future periods.
IFRS 12 requires that tax liabilities be recognized when it is probable that profits will be available against which they can be realized.
Example. Company C, carrying out the reorganization, plans to dismiss 20 employees with payment of the corresponding dismissal benefits in the amount of 100 thousand dollars. The arrears in payment of benefits will be repaid by the company in the period following the reporting period. These amounts are fully attributed to expenses that are deductible when determining the company's taxable profit.
Tax expense (tax refund) consists of current tax expense (current tax refund) and deferred tax expense (deferred tax refund).
Recognition of current tax liabilities and assets does not pose any particular difficulties. Tax liabilities or claims are accounted for in accordance with normal liability and asset accounting principles. Current tax for the current and previous periods should be recognized as a liability equal to the amount unpaid. If the amount paid for a given period and a previous period already exceeds the amount payable for those periods, the excess should be recognized as an asset. A tax loss benefit that can be carried forward to offset current tax for the prior period should be recognized as an asset.
Recognition of deferred taxes. A deferred tax liability should be recognized for all taxable temporary differences unless they arise:
1) from goodwill, the depreciation of which is not subject to inclusion in gross expenses for tax purposes;
2) the initial recognition of an asset or liability in connection with a transaction that:
Is not a combination of companies;
At the time of occurrence, it does not affect either accounting or taxable profit.
When the economic benefit is not subject to tax, the tax base of the asset is equal to its carrying amount.
If the amortization of goodwill can be expensed, a deferred tax liability is recognized. It should be noted that special rules apply to business combinations.
Regarding taxable temporary differences, IFRS 12 suggests the following.
Allows assets to be recognized at fair value or revalued value in cases where:
Revaluation of an asset results in an equivalent adjustment to the tax base (no temporary difference arises);
The revaluation of the asset does not result in an equivalent adjustment to the tax base (a temporary difference arises and deferred tax must be recognised).
Taxable temporary differences arise and the cost of acquiring the company is allocated to the assets and liabilities acquired based on their fair values, without making an equivalent adjustment for tax purposes.
A deferred tax asset (requirement) shall be recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available to which the deductible temporary difference can be utilised, unless the deferred tax asset arises:
From negative business reputation (goodwill) accounted for in accordance with IFRS 3 “Business Combinations”;
The initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting nor taxable profit (tax loss).
The carrying amount of the deferred tax asset at each reporting date should be reviewed. The company must reduce it to the extent that it is no longer probable that sufficient taxable profit will be available on which the tax requirement can be applied.
Thus, the rules of IFRS 12 regarding the recognition of deferred tax assets differ from the rules for the recognition of tax liabilities: liabilities are always recognized in full (subject to existing exceptions to the rules), assets in some cases are subject to only partial recognition or are not subject to recognition at all. This approach is applied in accordance with the concept of prudence. An asset is recognized only when the entity expects to receive economic benefits from its existence. The presence of deferred tax liabilities (in relation to the same tax authorities) is conclusive evidence of the recoverability of the asset.
Deferred tax is recognized as income or expense and included in net profit or loss for the period. The exception is those tax amounts that arise:
From a transaction or event recognized in the same or a different period by allocation to equity;
Business combinations in the form of acquisition.
Deferred tax shall be debited or credited directly to equity when the tax relates to items that are debited or credited in the same or a different period directly to equity.
Valuation of deferred taxes. When measuring deferred tax assets and liabilities, the income tax rate that is expected to exist when the claim (asset) is realized or the liability is settled is applied. The tax rate assumption is made based on future rates existing or announced at the reporting date and tax laws. As a rule, the tax rate in effect at the reporting date is used for the assessment, since it is impossible to foresee its change in the future.
Sometimes the tax consequences of recovering the carrying amount of an asset depend on the method of recovery, so deferred tax assets are measured based on the expected method of recovering the assets or settling the liabilities at the reporting date.
Example. Company A owns an asset with a book value of $10,000 and a tax base of $7,000. If the asset is sold, the income tax rate will be 24% and the tax rate on other income will be 30%.
If the asset is sold without further use, Company A recognizes a deferred tax liability of $1,680 (7,000 x 24%). If the asset is expected to be retained for the purpose of recovering its value through future use, the deferred tax liability will be $900 (3,000 x 30%).
An entity is required to disclose in a note to the financial statements the deferred component of tax expense, indicating the amounts resulting from changes in the tax rate.
Since deferred tax assets and liabilities are relatively long-term objects, the question arises about the possibility of reflecting the discounted amount of deferred taxes in the financial statements. However, IFRS 12 prohibits discounting of deferred taxes.
Temporary differences. As already mentioned, the difference between the residual value of an asset and its value from the point of view of the tax authorities is called temporary and becomes a source of deferred tax assets or liabilities. IFRS 12 uses the so-called balance sheet approach to determining deferred taxes, i.e. For each item of assets or liabilities, the difference between the balance sheet valuation and the tax base is determined.
Let's look at the circumstances that give rise to temporary differences.
1. Inclusion of income or expenses in accounting profit in one period, and in taxable profit in another. For example:
Items taxed on a cash basis and shown in financial statements on an accrual basis;
Example. Company A's financial statements show interest income of $20,000, but no cash has yet been received in respect of it. In this case, interest income is taxed on a cash basis. Therefore, the tax base of such a percentage tax will be zero. A deferred tax liability will be recognized for the temporary difference of $20 thousand.
If accounting depreciation differs from depreciation charged to gross expenses for tax purposes;
Example. The initial cost of fixed assets of company A as of December 31, 2006 is $2 million, and depreciation (according to financial statements) is equal to $300 thousand. In tax accounting, depreciation charges in the amount of $500 thousand are written off as gross expenses . The tax base of the property, plant and equipment is $1.5 million. A deferred tax liability will be created in respect of a taxable temporary difference equal to $200 thousand.
Leases that are accounted for as finance leases under IFRS 17 but are considered operating leases under applicable tax laws.
2. Revaluation of fixed assets when the tax authorities do not revise their tax base.
It should be noted that the definition of temporary difference also applies to items that do not give rise to deferred taxes (for example, accruals on items that are not taxable or are not subject to write-off to gross expenses for tax purposes). Therefore, the standard contains a provision that allows non-taxable items to be excluded from the calculation of deferred taxes.
Example. Company A loaned $400,000 to Company B. Company A's financial statements as of December 31, 2006 show a loan receivable of $300,000, and there would be no tax consequences to the repayment of the loan. Hence, the tax base of the loan receivable is equal to $300 thousand. There is no temporary difference.
You should pay attention to the occurrence of temporary differences when merging companies:
When calculating goodwill. The cost of an acquisition is allocated to the identifiable assets and liabilities acquired based on their measurement at fair value at the acquisition date, which may result in a restatement of their carrying amounts without affecting the tax basis. Temporary differences arise when a business combination has no or different effect on the tax bases of the identifiable assets and liabilities acquired. Deferred tax is recognized in respect of temporary differences. Such recognition will affect the share of net assets, including the value of goodwill (deferred tax liabilities are identifiable liabilities of the subsidiary). In connection with business reputation (goodwill), a temporary difference also arises, but IFRS 12 prohibits the recognition of the deferred tax arising in this way; due to the difference between the carrying amount of investments in subsidiaries (branches, associates or interests in joint ventures) and their tax basis (which is often equal to the cost of acquisition). Book value is the parent company's or investor's share of net assets plus the book value of goodwill.
Example. Company A paid $800 for 100% of the shares of Company B on January 1, 2006. In Company A's consolidated accounts as of that date, the carrying amount of its investment in Company B consisted of the following, in thousands of dollars:
Fair value of Company B's identifiable net assets (including deferred taxes) 620
Goodwill 180
Book value 800
At the acquisition date, the carrying amount is equal to the acquisition cost, since the latter is allocated to net assets, and the remainder is goodwill.
Example (continued). In the country where Company A operates, the tax base is equal to the cost of the investment. Therefore, no temporary difference arises at the acquisition date.
Company B's profit for 2006 amounted to $150 thousand, which was reflected in the value of its net assets and equity capital.
Company A amortizes goodwill over six years. For 2006, accrued depreciation amounted to $30 thousand. As of December 31, 2006, in the consolidated financial statements of Company A, the carrying amount of its investment in Company B consisted of the following, thousand dollars:
Fair value of Company B's identifiable net assets (620 + 150) 770
Goodwill (180 - 30) 150
Book value 920
Thus, a temporary difference arises in the amount of 120 thousand dollars (920 - 800).
The Company must recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, branches and interests in joint ventures, except to the extent that both meet the following criteria:
The parent company, investor or joint venturer can control the timing of the repayment of the temporary difference;
It is possible that the temporary difference will not be reversed in the foreseeable future.
The parent company, by controlling the dividend policy of its subsidiaries (and affiliates), can determine the timing of the repayment of temporary differences associated with the underlying investment. Therefore, if a parent decides that no dividends will be paid in the foreseeable future, it does not recognize a deferred tax liability.
Example (continued). If Company A decides not to sell its interest in Company B's shares for the foreseeable future and requires Company B not to distribute its profits, then the deferred tax liability in connection with Company A's investment in Company B's shares will not be recognized (Company A will have to disclose the amount of the temporary difference in the amount of $120 thousand, for which deferred tax was not recognized).
If Company A plans to sell its interest in Company B or Company B expects to distribute profits, Company A recognizes a deferred tax liability to the extent that the temporary difference is expected to be settled. The tax rate reflects the manner in which Company A recovers the carrying amount of its investment.
An investor who invests in an associated company does not control it and, as a rule, does not have the opportunity to determine its dividend policy. Therefore, in the absence of an agreement that requires it not to distribute the earnings of the associate for the foreseeable future, the investor recognizes a deferred tax liability arising from taxable temporary differences associated with its investment in the associate.
Example (end). If Company B is an associate of Company A, then, absent an agreement that Company A will not receive its share of Company B's profits in the foreseeable future, Company A should recognize deferred tax on the $120,000. The tax rate should reflect the method of recovery by Company A the carrying amount of its investment.
Retained earnings of subsidiaries, associates, branches, and joint ventures are included in consolidated retained earnings, but income taxes are payable when the earnings are transferred to the reporting holding company.
According to IFRS 27, consolidation excludes unrealized gains (losses) on intragroup transactions, which can lead to temporary differences. As a rule, the subjects of taxation are individual legal entities included in the group. The tax base of an asset (from the tax authorities' point of view) acquired from another group company is equal to the purchase price paid by the purchasing company. In addition, the selling company will have to pay tax on profits from the sale of the asset, regardless of the fact that the group still owns the asset.
In this case, deferred tax is recognized using the acquiring company's income tax rate.
Presentation and Disclosure. In the balance sheet, tax assets and liabilities must be presented separately from other assets. Deferred tax assets and liabilities must be separated from current tax assets and liabilities.
If a company distinguishes between current and non-current assets and liabilities in its financial statements, it should not classify deferred tax assets (liabilities) as current assets (liabilities).
A company must offset current tax liabilities when it:
a) has a legally enforceable right to set off recognized amounts;
b) intends to set off or realize the asset and repay
obligations at the same time.
An entity must offset deferred tax liabilities when it:
a) has a legally enforceable right to offset current tax assets and current tax liabilities;
b) deferred tax assets and deferred tax liabilities relate to income taxes that are collected by the same tax authority:
From the same subject of taxation;
From various taxable entities that intend to offset current tax liabilities and assets or to realize assets and settle liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities and claims are expected to be settled or offset.
The income statement must present the tax expense (tax refund) that is associated with profit or loss from ordinary activities. IFRS 12 requires not only to reflect the amount of income tax in the income statement, but also to disclose its main components.
Thus, deferred tax requires the disclosure of the following information, namely:
1) elements of tax costs (tax reimbursement), which may include:
Current tax costs (tax refund);
Adjustments to prior periods;
Deferred tax costs (tax refund) in connection with the formation and settlement of temporary differences;
Deferred tax costs (tax refunds) due to changes in the income tax rate;
Tax costs (tax refund) due to changes in accounting policies and correction of a fundamental error;
2) total current and deferred taxes related to items that are debited or credited to equity;
3) tax costs (tax refunds) that relate to the results of extraordinary circumstances recognized during the period;
4) explanations of the relationship between tax costs (tax refunds) and accounting profit in the form of a numerical reconciliation between:
Tax costs (tax refund) and the product of accounting profit and the applicable income tax rate(s), indicating the method for calculating the applicable rate(s);
Or the average effective tax rate, disclosing the method for calculating the applicable tax rate;
5) explanations of changes in the applicable tax rate(s) compared to the previous period;
6) the amount (and, if any, expiration dates) of deductible temporary differences, unused tax losses and credits for which a deferred tax asset was not recognized in the balance sheet.
The international standardization system is used to facilitate the exchange of data between countries. IFRS is used by Russian companies that are participants in foreign enterprises - banks, insurance companies and when conducting trading or investment activities. Among domestic organizations, the formation of accounting and reporting in accordance with IFRS is a mandatory condition for the activities of commercial banks. In this article we will talk about income tax according to IFRS 12, and consider the accounting procedure.
IFRS represents a certain procedure for assessing accounting objects, a list of mandatory documents and grounds for entering information into the reporting.
The fundamental principles of international standardization are the accessibility of the format for presenting information, the absence of distortion of indicators, and the interconnectedness between reporting periods. The information should not reflect the interests of a group of persons and should not have the significance of the information for making economic decisions.
Objectives implemented by the provisions of IAS 12
The main elements of international reporting standardization are assets, costs, liabilities, profits, and equity. The standard providing for the disclosure of information about profits is IFRS 12. To account for profits when using the standard, the terms used in the global document flow are used. The need for unification of operations and terms arose in connection with the development of interrelations in the economy and the creation of companies conducting joint activities.
Differences in application of the provisions of the standards
When developing PBU 18/02, the provisions of the international standard were used to bring domestic and international reporting closer together. The difference in the provisions of the two types of standards is the intended use. The domestic standard is aimed at the correct formation of financial results, the international standard is aimed at detailed disclosure of the information received and satisfaction of the interests of external users.
| The standards have a number of detailed differences. | Condition | PBU |
| IFRS | Constant differences | Are taken into account |
| Not used in the standard | Concept of temporary differences | Data generating profit for accounting purposes |
| The difference between the amount of an asset or liability on the balance sheet and when calculating the tax base | Accounting for previous differences | The absence of the necessary provisions does not allow differences to be taken into account in current reporting |
| The standard allows you to take into account data from earlier periods | Moment of accrual of taxes and differences | During the entire accounting period |
| At the reporting date | Deferred tax accounting | Not specified |
| Accounting for transactions during the reorganization of enterprises | There is no data on consolidated statements | Cases of deferred taxes during mergers and consolidations of companies are revealed |
The purpose of creating the domestic standard PBU 18/02 is to create a relationship between the two types of accounting in terms of forming the profit tax base.
Accounting for income tax expenses
The main purpose of the international standard IFRS (IAS) 12 is to reflect income tax expenses, current (RTN) and deferred for payment or reimbursement for future periods (RON).
| Type of expenses | Determining the amount | Formula | Peculiarities |
| Current tax | The amount to be paid based on the profit received for the period current reporting | RTN = PN (profit subject to taxation) x C (applied tax rate) | The indicator can have both a negative and a positive value. The amount has nothing to do with the debt |
| Deferred tax | The amount of changes to assets and liabilities calculated using the balance sheet method | RON = value SHE + IT | The size of RON is determined by temporary differences |
Presentation of financial information in IFRS 12
The standard defines accounting treatment related to current and deferred income taxation. When generating financial information, a number of rules are taken into account.
| Condition (indicator) | Rationale |
| Current responsibility | Indicated in the amount that must be paid for the period according to current rates or reimbursed according to legal norms |
| Mismatch between book and tax profits | Elimination is carried out by using ONA or ONO. At the same time, the main condition for using OHA is the probability of making a profit |
| Rates for deferred indicators | Rates expected in the period apply |
| Source of repayment in case of rate changes | If the expected rate changes, the difference is charged to profit or loss. |
Accounting for temporary differences within the framework of standardization
The standard introduced the concept of temporary differences between profits calculated from balance sheet and tax data. The essence of the concept is that income and expenses calculated using different data are recognized at different times. The indicator is defined as the difference between the carrying amount of an asset or liability and its tax base.
Temporary differences are divided into deductible amounts, which subsequently lead to a reduction in liabilities (IT) and taxable ones, which subsequently increase income tax (IT).
An example of a temporary difference is when accounting for depreciation charges in the case of using bonuses in taxation. Part of the cost of a fixed asset in tax accounting is written off at a time, which determines the occurrence of temporary differences.
Using the amounts ONA and ONO
- If differences in assessment occur in accounting, the indicators of deferred tax asset (DTA) and liability (DTA) are used. The possibility of creating data is preceded by an analysis confirming the subject’s right to use preferences. Features of data generation:
- IT is taken into account for tax reimbursement in subsequent periods in the presence of deductible temporary differences or in the presence of losses carried forward to a future reporting period.
IT is applied if there are taxable differences in accounting, on the basis of which tax is subsequently paid.
The possibility of creating an ONA is available if there is evidence of future profit, the amount of which will allow losses to be offset or the required benefits to be applied.
To present reliable information, an enterprise must determine for each asset and liability the amount calculated as of the reporting date at book value and tax value, then determine the differences and determine IT or IT taking into account the projected rate.
Evaluation of ONA or ONO indicators and features of reporting
- In reporting, deferred indicators are taken into account at different rates applied depending on the conduct of business. To create an SHE or IT, you must have information about the rates used in the rollover period. A change in the rate entails a recalculation of amounts and adjustments based on current data. When taking into account SHE and IT:
- No discounting is carried out.
- At the reporting date, it is necessary to re-recognize SHE or ONO due to changed conditions.
- Based on the results of the assessment, it is necessary to reduce the amount of OTA, taking into account the likelihood of a decrease in profit necessary to reimburse the tax.
In subsequent periods, increase IT upon receipt of a forecast of sufficient profitability.
The company received a loss of 20 thousand USD. The shareholders decided to carry forward the loss to the next period at a tax rate of 20% in the amount of the deferred asset of 4,000 c.u. e. Next year, the company's costs increased by 10 thousand cu, which did not allow it to reduce losses in full. Accordingly, IT needed to be reduced by 2,000 USD. (20,000 – 10,000) x 20%. If profit arises in the subsequent period, the amount of IT is restored.
Features of grouping information in reporting
The articles separately indicate the constituent elements of profit, grouped by degree of disclosure:
- Detailed, detailing information established by the standard and internal company policy.
- Explanatory, decoding indicators in relation to periods or among themselves.
- Other, representing information that the organization considered necessary to convey to users.
The standard indicates the need to record rolled-up indicators that can be offset against each other with an indication of the total balance. The opportunity to carry out an offset operation is available for indicators relating to the same period or contributed to one recipient. If the asset is expected to be reimbursed in a year, and the liability is expected to be repaid after two reporting periods, offset is not performed.
The right to set-off arises after a number of steps have been taken, including an analysis to confirm that the entity's liabilities will not decrease.
When conducting offsets, companies use only significant data that influences economic decision-making.
Data Submission Requirements
- The procedure for data generation is approved by the general requirements imposed by the standards:
- The reporting contains information confirming the assessment of the subject’s condition and the result of its activities.
- When entering data, the continuity and consistency of accounting is taken into account.
- The assessment of indicators is accepted only if there is reliable evidence.
- Variants of business models, recognition of units, and individual parameters established by the organization are allowed.
The reporting confirms the concept of capital and provision of the required level.
Category “Questions and Answers” Question No. 1.
Entities use international standardization to make information more accessible to foreign users. Reporting is generated by organizations wishing to attract foreign partners. When determining the need, feasibility is taken into account, since servicing operations requires professional knowledge.
Question No. 2. Does the regulation address the procedure for providing government subsidies?
The standard reflects information in the form of temporary differences that arise when a deduction or subsidy is provided.
Question No. 3. Is it allowed to indicate collapsed data on amounts paid to different budgets?
Balanced data is indicated when it is possible to offset, which is only possible with a single recipient.
Question No. 4. How many periods are taken into account when presenting the first financial statements under IFRS?
The reporting, presented for the first time according to international standards, covers 2 calendar annual periods - the current and the previous one.
Question No. 5. Which entities apply the Russian standard?
The provision is used by all organizations that apply the generally established taxation system and maintain full accounting records. The standard is mandatory for entities paying income tax. They do not use the standards for small business organizations, which are enshrined in internal regulations.
E. Chipurenko, Ph.D.
An innovation in Russian accounting is deferred taxes, which represent part of the income tax expenses reflected in the financial statements. Deferred taxes are expressed as the amount of tax that an organization will have to pay (or reimburse) in the future in relation to the current reporting period (the period in which the financial statements are prepared).According to the rules customary for Russian practice, only current tax obligations payable to the budget at the end of the reporting period were reflected in the balance sheet in the section of short-term liabilities. And only with the introduction of PBU 18/02 new items appeared in the balance sheet: 145 “Deferred tax assets” and 515 “Deferred tax liabilities”. In the income statement, instead of the line “income tax,” the following items appeared: “Current income tax,” “Deferred tax assets,” and “Deferred tax liabilities.” Thus, financial reporting forms have become more complex.
The concept of deferred taxes has been used in global accounting practice since 1967; it first appeared in American accounting. Then this indicator was introduced into the national accounting standards of Great Britain, and later began to be used in Europe. In International Financial Reporting Standards (hereinafter referred to as IFRS), the term “deferred taxes” was introduced by the first edition of IFRS 12 “Accounting for Income Taxes” in 1979. The standard has undergone significant changes since then. Currently, the 1996 standard IFRS 12 “Income Taxes” is applied.
It is believed that the national standard PBU 18/02, which has been used by Russian organizations for almost a year, was developed on the basis of IFRS 12. Let us consider the features of the calculation of deferred taxes regulated by IFRS 12, in comparison with the calculation established by PBU 18/02.
Both standards distinguish between accounting and taxable profit. Accounting profit is the profit recognized in the income statement before deducting income tax expense. Taxable profit is the amount of profit (loss) for a period, determined in accordance with the rules of tax legislation for the purpose of calculating income tax payable to the budget. The amount of profit for a period in both accounting and tax accounting is determined by the same formula: Profit (loss) = Income - Expenses.
The rules for the formation of income and expense indicators in accounting and tax accounting may be different, which ultimately leads to a discrepancy between accounting and taxable profits for the same reporting period. As a result of this discrepancy, a tax effect arises.
Example 1. A trading organization uses the cash method to calculate income tax. In the reporting year 2003, two batches of goods were sold - for 100,000 and 50,000 rubles, the cost of which was 90,000 and 30,000 rubles, respectively.
At the end of the reporting period, the organization’s balance sheet reflected receivables in the amount of 100,000 rubles. - for the first batch of goods not paid for by the buyer. For the reporting period, the accounting profit will be 30,000 rubles, and the taxable profit will be 20,000 rubles. Income tax payable should be calculated based on taxable profit in the amount of RUB 20,000. The values of the corresponding indicators for 2003 are presented in table. 1.
Table 1
Value of indicators for 2003
If, when calculating net profit in accounting, we use the amount of income tax payable (4,800 rubles), then at the end of the reporting period the amount of net profit for distribution will be 24,200 rubles. (30,000 - 4800). It was this amount that was distributed as dividends and paid to the founders of the organization. Let us assume that in 2004 the organization did not conduct any activities. The buyer repaid the debt, which resulted in income tax liabilities. The values of the indicators based on the results of 2004 are presented in table. 2.
table 2
Value of indicators for 2004
Thus, a profit tax in the amount of 2,400 rubles arose, since taxable profit “grew” and reached the amount of accounting profit for 2003. And then it becomes clear that dividends were paid based on the results of 2003 based on erroneously calculated net profit. In fact, the profit was less by the amount of tax, the obligation to pay which arose only at the end of 2004. The final figures are presented in table. 3.
Table 3
Total indicator values
The calculation of net profit for 2003 was carried out in violation of the accrual method, when accounting profit before tax, obtained on the accrual basis, was compared with tax liabilities calculated on the basis of the cash method. The result is overpaid dividends and, possibly, a lack of funds to pay taxes based on the results of 2004.
The use of deferred taxes in accounting and reporting makes it possible to neutralize the tax effect and correctly (from the standpoint of accounting standards) formulate the financial reporting indicators of the enterprise.
In the example considered, the amount of income tax reflected in the accounting records at the end of 2003 will consist of two parts:
4800 rub. - the amount of current income tax, calculated on the basis of taxable profit and subject to payment to the budget;
2400 rub. - the amount of deferred income tax, which already in 2003 will reduce the net profit in accounting, but will be paid to the budget only at the end of the next reporting period.
There are many reasons that can cause a tax effect, and most of them are related to the discrepancy between the rules for the formation of income and expenses in tax and accounting. To eliminate the impact of the tax effect on net profit, accounting rules regulated by PBU 18/02 and IFRS 12 were introduced. The purpose of IFRS 12 and PBU 18/02 is to determine the accounting procedure for income taxes, which establishes how to reflect current and future tax consequences.
We can say that this is where the overlap between the two analyzed standards ends.
Let's consider the differences in the provisions of the two standards. The first and, apparently, main discrepancy lies in the approaches to determining the essence of deferred taxes.
In accordance with PBU 18/02, income tax is included in the profit and loss statement in an amount equal to the product of accounting profit for the reporting period and the tax rate. It does not matter how much tax should be paid to the budget for the reporting period. Accounting records reflect the amount of income tax that would be payable to the budget if all expenses and income were recognized for tax purposes simultaneously with accounting. By calculating the amount of deferred taxes, the impact of income and expenses of the reporting period on the obligation to pay income taxes in future periods is taken into account. That is why deferred taxes, in accordance with the requirement of PBU 18/02, are calculated using the income tax rate in force in the reporting period, i.e. when income and expenses have arisen, the impact of which will manifest itself in the future.
To calculate the amount of deferred taxes and identify all the reasons that influenced the discrepancy between taxable and accounting profits, a line-by-line reconciliation of income and expenses reflected in the income statement with income and expenses included in the tax return for the reporting period is required.
IFRS 12 takes a different approach. Deferred tax calculation is necessary to determine the future income tax liability based on assumptions about future income and expenses that will arise from the company's current assets and liabilities. Thus, when preparing reports for the current reporting period, it is necessary to determine and reflect the tax effect that will arise in the future due to the use of assets and the repayment of liabilities that are reflected in the balance sheet at the end of the current period.
Example 2. An organization purchases a machine for 100,000 rubles, assuming that by producing products on it and selling it, it will recoup the money spent in five years. Thus, annually the price of sold products will include part of the cost of the machine, i.e. the organization will recover the cost of the asset. The balance sheet at the end of each year will record the residual value of the machine, corresponding to the not yet recovered cost of this asset and depending on the chosen depreciation method. Let’s assume that at the end of the third year, the residual value of the machine on the balance sheet will be 40,000 rubles. This means that in the next two years the organization must receive revenue in the amount of at least 40,000 rubles in order to recoup the money spent on purchasing the machine. For tax purposes, depreciation is calculated using the accelerated method; at the end of the third year in tax accounting, the residual value of the machine will be 20,000 rubles. Thus, already at the end of the third year of operation of the machine, it becomes clear that if the organization receives even a minimum amount of revenue in the amount of 40,000 rubles. she will have to pay income tax. Moreover, it is already possible to determine exactly in what amount, since it is known that in tax accounting, as an expense that reduces income, you can use the residual value of the machine only in the amount of 20,000 rubles. Therefore, the remaining amount is RUB 20,000. (40,000 - 20,000) is taxable profit, and, assuming that the income tax rate by the fifth year of operation of the machine will be 30%, the amount of deferred tax at the end of the third year will be 6,000 rubles. (RUB 20,000 x 30%). By annually comparing the value of an asset (liability) in the organization’s balance sheet and the value of the same asset (liability) for tax purposes, it is possible to predict the tax consequences of recovering the value of the asset (repaying the liability) in the future.
Thus, PBU 18/02 determines the tax effect in the future from income and expenses taken into account in the reporting period. IFRS 12 assesses the tax effect of future income and expenses that will arise in the process of using existing assets (settling liabilities) in the future activities of the organization. For this purpose, IFRS 12 introduced two concepts - the tax base of an asset (liability) and the book value of an asset (liability), which are not used by PBU 18/02.
Example 3. Fixed asset item worth 3 million rubles. has a useful life for accounting purposes of five years. For tax purposes, it is depreciated over three years. By the end of the second year, the residual value of the object on the balance sheet is equal to 1.8 million rubles, the tax base is 1 million rubles. (Table 4).
Table 4
Calculation of the book value and tax base of the asset, rub.
| Indicators | Indicator values | ||||
| 1 year | 2 year | 3 year | 4 year | 5 year | |
| Accounting | |||||
| 3000 | 3000 | 3000 | 3000 | 3000 | |
| Annual depreciation | 600 | 600 | 600 | 600 | 600 |
| Accumulated depreciation | 600 | 1200 | 1800 | 2400 | 3000 |
| Accounting value | 2400 | 1800 | 1200 | 600 | 0 |
| Tax accounting | |||||
| Initial cost of the fixed asset | 3000 | 3000 | 3000 | 3000 | 3000 |
| Annual depreciation | 1000 | 1000 | 1000 | ||
| Accumulated depreciation | 1000 | 2000 | 3000 | ||
| The tax base | 2000 | 1000 | 0 | 0 | 0 |
The book value of an asset is the value of that asset reflected in the balance sheet at the end of the reporting period. The tax base of an asset is the value of the asset that will be accepted for profit tax purposes in the future. The tax base shows the amount of potential expenses that will be taken into account when calculating taxable profit in future periods. At the time of acquisition of a fixed asset, its book value and tax base are equal, but at the end of the first year of operation the book value is equal to 2,400 rubles, and the tax base is 2,000 rubles. The reason for the discrepancy between the two indicators was the use of different depreciation methods. At the end of the third year of operation, the book value of the asset will be 1,200 rubles, and the tax base will be equal to 0, since the entire initial cost of the fixed asset was taken into account when calculating profit as depreciation expenses.
Let's determine the amount of deferred taxes by comparing two methods - the method established by PBU 18/02, and the balance sheet liability method regulated by IFRS 12. Let us assume that there is only one reason for the discrepancy between the amounts of accounting and taxable profit - the use of different methods of depreciation of fixed assets. Let us turn to the data from the profit and loss statement and the income tax return to calculate the income tax using the PBU 18/02 method (Table 5).
Table 5
Calculation of deferred tax using the regulated method
PBU 18/02, rub.
| Indicators | Indicator values | |||||
| 1 year | 2 year | 3 year | 4 year | 5 year | ||
| Income Statement Data | ||||||
| 1500 | 1500 | 1500 | 1500 | 1500 | ||
| Depreciation deductions | 600 | 600 | 600 | 600 | 600 | |
| 900 | 900 | 900 | 900 | 900 | ||
| Conditional income tax expense | 315= | 315= | 315= | 315= | 315= | |
| Tax return details | ||||||
| Earnings before depreciation and amortization | 1500 | 1500 | 1500 | 1500 | 1500 | |
| Depreciation deductions | 1000 | 1000 | 1000 | 0 | 0 | |
| Profit after depreciation | 500 | 500 | 500 | 1500 | 1500 | |
| Current income tax | 175= | 175= | 175= | 525= | 525= | |
| Deferred tax calculation | ||||||
| Difference between accounting and taxable profit | 400= | 400= | 400= | (600)= | (600)= | |
| Deferred tax | 140= | 140= | 140= | (210)= | (210)= | |
Thus, in the first three years, accounting profit turned out to be greater than taxable profit, which led to the formation of a temporary difference equal to the excess of annual depreciation in tax accounting over annual depreciation in accounting. By multiplying the annual temporary difference by the income tax rate, we obtain the amount of deferred tax for the reporting year. In the first three years, the use of different depreciation methods in tax and accounting led to the emergence of a deferred tax liability, the accumulated amount of which at the end of three years amounted to 420 rubles.
The following entries are made in accounting annually (over three years):
Debit 99, Credit 68 - 315 rub. - a contingent income tax expense has been accrued,
Debit 68, Credit 77 - 140 rub. - deferred tax liability has been accrued.
In the fourth and fifth years, the amount of taxable profit exceeded the amount of accounting profit, since the entire cost of the fixed asset was written off by the beginning of this period in tax accounting and expenses in the form of depreciation are equal to 0. Conditional income tax is calculated as the product of accounting profit by the tax rate. The amount of the conditional tax is less than the amount of the current income tax payable to the budget, determined according to tax accounting data. In the fourth and fifth years, the operation of repaying the accumulated tax liability takes place, the purpose of which is to bring the conditional tax to the value of the current tax liabilities to the budget for the reporting period. The annual repayment of deferred tax is equal to the product of the tax rate and the difference between accounting and taxable profit.
The following is recorded in accounting:
Debit 77, Credit 68 - 210 rub. - reflects the repayment of deferred tax.
To calculate deferred taxes using the deferred tax calculation method established by IFRS 12 (Table 6), balance sheet data is required at the end of the reporting period. In the example under consideration, in the balance sheet for each of the five years we will be interested in only one item, which we limited ourselves to in the conditions of the problem - the residual value of fixed assets. The calculation will require the residual value of fixed assets at the end of each year for tax purposes, which must be contained in the tax registers. Since in practice deferred taxes arise quite often, it is recommended to prepare a tax balance in addition to the balance sheet. Assets and liabilities in the tax balance sheet must be presented in valuation for tax purposes.
The deferred tax account balance shown in Table. 6, is reflected in the balance sheet at the end of the reporting period. And next year it will be the initial balance. The amount of deferred taxes arising or settled in the reporting period is determined as the difference between the opening and closing balances of the deferred tax account.
Table 6
Calculation of deferred tax using a regulated method
IFRS 12, rub.
| Indicators | Indicator values | ||||
| 1 year | 2 year | 3 year | 4 year | 5 year | |
| Balance Sheet Data | |||||
| Book value | 2400 | 1800 | 1200 | 600 | 0 |
| Tax balance data | |||||
| The tax base | 2000 | 1000 | 0 | 0 | 0 |
| Deferred tax calculation | |||||
| Difference between book value and tax base | 400 | 800 | 1200 | 600 | 0 |
| Deferred tax account balance at the end of the year | 400 x 35%= | 800 x 35%= | 1200 x 35%= | 600 x 35%= | 0 x 35%= |
| Deferred tax account balance at the beginning of the year | 0 | 140 | 280 | 210 | 210 |
| Balance difference at the beginning and end of the reporting period | 140-0=140 | 280-140= | 420-280= | 210-420= | 0-210= |
Data on the annual amounts of adjustment of deferred tax arising (repaid) in the reporting period are reflected in the income statement, where the amount of income tax expense from the accounting profit of the reporting period is calculated (Table 7).
Table 7
Calculation of current income tax, rub.
| Indicators | Indicator values | ||||
| 1 year | 2 year | 3 year | 4 year | 5 year | |
| Earnings before depreciation and amortization | 1500 | 1500 | 1500 | 1500 | 1500 |
| Depreciation deductions | 600 | 600 | 600 | 600 | 600 |
| Profit after depreciation | 900 | 900 | 900 | 900 | 900 |
| Income tax expense | 315 | 315 | 315 | 315 | 315 |
| Deferred income tax (data from Table 6) | 140 | 140 | 140 | (210) | (210) |
| Current income tax | 175 | 175 | 175 | 525 | 525 |
Despite the fact that the amounts of income tax expense, deferred tax and current tax are the same when using different calculation methods, the calculation procedure and the procedure for reflecting income tax elements in the accounting accounts differ.
In accordance with the method regulated by IFRS 12, differences are initially determined according to the balance sheet data at the end of the reporting period - between the book value and the tax base of assets and liabilities reflected in the balance sheet. In this case, all deductible differences received are summed up separately and all taxable differences are summed up separately. Then, by multiplying the resulting differences by the income tax rate, the balance of the deferred tax account at the end of the reporting period is determined. By comparing the balance of the deferred tax account at the beginning and end of the reporting period, the total amount of deferred taxes arising or repaid during the reporting period is obtained. It is this amount that is shown in the income statement as part of income tax expenses as deferred tax. In addition, the same amount is reflected in the transaction in the deferred tax account for the reporting year.
The entire amount of conditional income tax (the product of accounting profit by the tax rate) is reflected in the debit of account 99 and the credit of account 68. Then, similarly, the accounts reflect the amounts of permanent tax liabilities that arose in the reporting period due to constant differences between accounting and taxable profit. The next step is to use the amount of deferred tax of the reporting period to carry out transactions on account 68 and deferred tax accounts 09 and/or 77, adjusting on account 68 the amount of conditional income tax expense to the amount of the current tax calculated in tax accounting for the reporting period.
IFRS 12 does not provide for the recognition of contingent income tax expense and permanent tax liabilities. The current tax determined on the basis of taxable profit and the amount of deferred taxes arising in the reporting period are reflected in the corresponding accounts - “Current income tax” (analogue of account 68) and “Deferred taxes” (analogue of accounts 09 and 77) in correspondence with the “Income Tax Expenses” account (analogous to the “Income Tax Expenses” subaccount of account 99). The correspondence of accounts is shown in table. 8.
Table 8
Tax accounting according to IFRS
As a result, the amount of current income tax immediately reduces accounting profit and is reflected as a liability to the budget, which is no longer adjusted. The amount of deferred taxes is also reflected in the Profit and Loss account and at the same time in the Deferred Taxes account. Thus, adjustments to deferred tax amounts are made through the “Profit and Loss” account, without affecting the account for settlements with the budget, where only the amount of current tax is recorded. As a result, the Profit and Loss account shows the total amount of income tax expense, which consists of current income tax expense and deferred income tax expense.
It seems to us that the comparative analysis of methods for calculating deferred taxes and reflecting income tax expenses in accounting, the use of which is regulated by IFRS 12 and PBU 18/02, will assist practicing accountants in mastering the rules of modern international accounting.