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, is the primary source of guidance on accounting for income taxes.
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Classification is split between current and noncurrent components on the basis of either (1) the underlying asset or liability or (2) the expected reversal of items not related to an asset or liability.
IAS 12 does not specifically address the accounting for tax uncertainties.
No deferred tax is recognized on undistributed earnings of foreign subsidiaries and corporate joint ventures if the duration of such earnings is considered permanent. GAAP, ASC 740-10-45-4 states, "Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting." In addition, if the deferred tax is unrelated to an asset or liability (e.g., an operating loss carryforward), the classification on the balance sheet should be based on the expected reversal of the underlying temporary difference. GAAP, ASC 740-10-30-5(e) states that deferred tax assets are recognized in full and then reduced "by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized." The valuation allowance will "reduce the deferred tax asset to the [net] amount that is more likely than not to be realized." Under IFRSs, deferred tax assets are only recognized to the extent that realizing them is probable (akin to U. Paragraph 48 of IAS 12 states, in part: Current and deferred tax assets and liabilities are usually measured using the tax rates (and tax laws) that have been enacted.
Deferred tax is recognized on the undistributed earnings of any form of investee unless (1) the parent is able to control the timing of the reversal of the temporary difference and (2) it is probable that the temporary difference will not reverse in the foreseeable future. Under IFRSs, paragraph 56 of IAS 1 states, "When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets (liabilities)." Therefore, on the balance sheet (i.e., the balance sheet showing current and noncurrent assets and liabilities), all deferred tax assets and liabilities are classified as noncurrent. However, in some jurisdictions, announcements of tax rates (and tax laws) by the government have the substantive effect of actual enactment, which may follow the announcement by a period of several months. GAAP, an entity cannot recognize a tax benefit in its financial statements unless it concludes that it is "more likely than not" that the benefit will be sustained on audit by the taxing authority solely on the basis of the technical merits of the associated tax position.
Recognition is based on whether it is probable that an outflow of economic resources will occur. Measurement is based on the entity's best estimate of the amount of the tax benefit. The FASB has concluded that an entity's income statement should not reflect a tax consequence for intercompany sales that are eliminated in consolidation. GAAP, the buyer is prohibited from recognizing a temporary difference between the book carrying amount and the asset's tax base.
The current tax paid or payable from the sale (of inventory or other assets) is deferred upon consolidation (as a prepaid income tax) and is not recorded until the inventory or other asset is sold to an unrelated party. Under IFRSs, the deferred tax effect must be recognized on consolidation for intercompany sales.
The recognition and measurement provisions of IAS 37 are relevant because an uncertain tax position may give rise to a liability of uncertain timing and amount.
Recognition is based on whether it is probable that an outflow of economic resources will occur. Measurement is based on the entity's best estimate of the amount of the tax benefit. (2) "Initial recognition" exemption — deferred tax is not recognized for taxable or deductible temporary differences that arise from the initial recognition of an asset or liability in a transaction that (a) is not a business combination and (b) at the time of the transaction does not affect accounting profit or taxable profit.
The resulting deferred tax is charged or credited to profit or loss (see paragraph 58). Under ASC 840-30, the tax consequences of leveraged leases are incorporated directly into the lease accounting measurements; therefore, no temporary differences are recognized.
IFRSs do not include a concept of leveraged leases.
In these circumstances, tax assets and liabilities are measured using the announced tax rate (and tax laws). Accordingly, an entity must assume that the position will be (1) examined by a taxing authority that has full knowledge of all relevant information and (2) resolved in the court of last resort.