IAS 12 – Income Taxes

IAS 12 – Income Taxes

Objective: The accounting treatment for income taxes, to establish the principles and provide guidance in accounting for the current and future income tax consequences related to:

(1) Future recovery amounts of assets liabilities in entity balance sheet.

(2) Current period transactions recognized in income statements or directly through equity.

Current Taxes: Liability and assets should be recognized for current and prior period taxes measured at the rate applicable for the period.

A temporary difference: it’s the difference between the amount of taxes in the financial statement of assets or liabilities and its tax based.

Deferred Taxes: deferred tax liabilities must recognized for the future tax consequences with three exceptions:

(1) Liabilities arising from recognition of goodwill.

(2) Liabilities arising from recognition of an asset or liabilities in business combination that does not effects neither the profit or taxable profit.

(3) Liabilities arising from undistributed profits from investments where the enterprise is able to control the timing.

Deferred taxes assets must be recognized for deductible temporary differences, unused taxes losses, and unused tax credits to the extent that is probable that taxable profit will be available. Deferred tax liabilities and assets should be measured at the tax rate expected to apply when the liability is settled or assets is realized based on tax law and rate on the balance sheet date. Discounting of deferred tax asset and liabilities is prohibited. Deferred taxes must be presented as "non-current" items in the balance sheet.

SIC 25– Income taxes of change in the Enterprise or its Shareholders

The current and deferred taxes consequences should be included in net profit and loss for the period, unless those consequences related to transaction or event that were recognized directly in equity so is the deferred taxes should be included in equity.

The Differences and Similarities between US GAAP Law and IFRS 

Similarities:  In both IFRS and US GAAP the total tax expense recognized in the income statement is the sum of current fax expenses, plus the change in deferred taxes of liabilities or assets during the period, net without taxes recognized in equity or arising from business combination. And when in both IFRS and Us GAAP Deferred tax is recognized for the estimated future tax effects of temporary differences and tax loss, and a temporary difference is the difference between the tax based of an asset or liability and its carrying amount in the financial statements. Further, deferred taxes for temporary differences arising from goodwill are not recorded under either approach, and deferred taxes on items accounted for directly in the equity, the deferred taxes also allocated directly to equity. Finally, neither US GAAP nor IFRS permits the discounting of deferred taxes.

Significant Differences:

IFRS	US Law  GAAP
Tax basis is generally the amount deductible or taxable for tax purposes.	Tax basis is taken from tax law acceptable in the state of entity	Tax basis
Requires taxes paid on intercompany profit to be recognized as incurred. Requires the recognition of deferred tax liability asset that is recognized for the difference between the tax basses and its amount in the consolidate financial statement. On assets transferred between entities.	Requires taxes paid on intercompany profit to be deferred. Prohibits the recognition of deferred tax liability asset that is recognized for the difference between the tax basses and its amount in the consolidate financial statement. On assets transferred between entities.	Taxes on asset in a consolidated group
"one step approach" which recognizes all uncertain tax position      at an expected value two step approach"" This recognizes only those uncertain tax positions that are considered more likely than not.	The amount of benefit to be recognized is based on the amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement.	Uncertain tax positions

Significant Differences:

IFRS	US Law  GAAP
Amounts are recognized only to the extent if it is probable "more likely  than not"	Recognized in full but reduces assets to the amount that is more   likely than not.	Recognition of deferred tax assets
All amount classified as non-current in the balance sheet.	Current or non-current classification, based on the nature of the related asset or liabilities.	Classification of deferred tax assets and liabilities
Recognition is required unless the control entity has control over the time on reversal of the temporary difference.	Recognition not required for those investments, unless it become apparent difference will reverse in the future.	Recognition of deferred taxes Liabilities from: (1) Investment in subsidiaries (2) Investment in Joint Ventures