Page 1 of 5Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
30 December 2015Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Draft IFRIC Interpretation DI/2015/1 Uncertainty over Income Tax TreatmentsThe Hong Kong Institute of Certified Public Accountants is the only body authorised by law toset and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provide youwith our comments on DI/2015/1.We appreciate the IASB's efforts to reduce the diversity in practice on the recognition andmeasurement of a tax liability or asset in circumstances where there is uncertainty in theapplication of tax law.We broadly support the draft Interpretation. However, we have concerns as to whether it goesfar enough in certain respects. In this regard, we have provided recommendations to improvethe scope of the draft Interpretation, to clarify the recognition threshold for uncertain taxpositions and to clarify the application of IAS 10 as to whether changes in facts andcircumstances relating to uncertain tax positions that occur between the end of the reportingperiod and the date when the financial statements are authorised for issue should be regardedas adjusting or non-adjusting events.In addition, we have serious concerns about the guidance in paragraph 21 of the draftInterpretation which implies that measurement uncertainty should be regarded as a form ofcontingent liability. We do not consider that paragraph 21 is consistent with IAS 37 andconsider instead that significant measurement uncertainty relating to uncertain tax positionsshould be disclosed under IAS 1.125.Our responses to the questions raised in DI/2015/1 are set out in more detail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me.Yours sincerely,Christina NgHead of Financial ReportingCN/BLEncl.Page 2 of 5Detailed comments on DI/2015/1 Uncertainty over Income Tax TreatmentsQuestion 1 – Scope of the draft InterpretationThe draft Interpretation provides guidance on accounting for current anddeferred tax liabilities and assets in circumstances in which there is uncertaintyover income tax treatments. Such uncertain tax treatments may affect taxableprofit (tax loss), tax bases, tax credits or tax rates that are used to recognise andmeasure current or deferred tax liabilities or assets in accordance with IAS 12Income Taxes.Do you agree with the proposed scope of the draft Interpretation? If not, why andwhat alternative do you propose?We agree that currently there is diversity in practice as to whether IAS 12 IncomeTaxes or IAS 37 Provisions, Contingent Liabilities and Contingent Assets should beapplied to uncertain tax positions. Therefore we broadly agree with the scope of thedraft Interpretation and would like to make further recommendations on the scope.We recommend that the scope of the draft Interpretation be extended to cover theaccounting for interest and penalties on uncertain tax positions, as there is alsodiversity in practice on these matters. We also recommend that the IASB clarifieswhether the draft Interpretation is applicable to business combinations in which theacquiree has uncertain tax positions, and to taxes that are not within the scope of IAS12 (for example, duties and value added tax). If these items are not within the scope ofthis draft Interpretation, the IASB should explicitly state so in the scope.Question 2 – When and how the effect of uncertainty over income tax treatmentsshould be included in determination of taxable profit (tax loss), tax bases,unused tax losses, unused tax credits and tax ratesThe draft Interpretation requires an entity to consider whether it is probable thata taxation authority will accept an uncertain tax treatment, or group of uncertaintax treatments, that it used or plans to use in its income tax filings.If the entity concludes that it is probable that the taxation authority will accept anuncertain tax treatment, the draft Interpretation requires the entity to determinetaxable profit (tax loss), tax bases, unused tax losses, unused tax credits or taxrates consistently with the tax treatment included in its income tax filings.If the entity concludes that it is not probable that the taxation authority willaccept an uncertain tax treatment, the draft Interpretation requires the entity touse the most likely amount or the expected value in determining taxable profit(tax loss), tax bases, unused tax losses, unused tax credits and tax rates. Themethod used should be the method that the entity concludes will provide thebetter prediction of the resolution of uncertainty.Do you agree with the proposal in the draft Interpretation on when and how theeffect of uncertainty should be included in the determination of taxable profit(tax loss), tax bases, unused tax losses, unused tax credits and tax rates? If not,why and what alternative do you propose?AppendixPage 3 of 5We agree that guidance should be provided about how uncertainty should be takeninto account in determining the tax amounts. We also agree that the draft Interpretationshould contain an explicit linkage to paragraph 46 of IAS 12, which states that the taxamounts 'shall be measured at the amount expected to be paid to (recovered from) thetaxation authorities'.However, we consider the draft Interpretation contains limited guidance on how theterm 'probable', in paragraph 15, should be applied in practice. Although the term'probable' is defined in the Glossary as 'more likely than not', we note that there is noconsistent application of this definition. Therefore, the draft Interpretation should clarifyhow 'probable' is to be applied in measuring the tax amounts within the context of IAS
12.46. We also request that the IASB clarifies how the term 'probable' can be appliedin the context of tax assets as well as for tax liabilities as it is not clear whether therecognition threshold for tax assets and tax liabilities are the same.We strongly suggest that the IASB uses the term 'best estimate' instead of the term'better prediction' in paragraph 16. We consider it would be more appropriate to usefamiliar terminology (in this case, by referring to the terminology in IAS 37) given thatthis is an interpretation of the existing standards. Introducing new terminology withoutexplaining the term could lead to unintended consequences.Question 3 – Whether uncertain tax treatments should be considered collectivelyThe draft Interpretation requires an entity to use judgement to determinewhether each uncertain tax treatment should be considered independently, orwhether some uncertain tax treatments should be considered together, in orderto determine taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax rates.Do you agree with the proposal in the draft Interpretation on the determination ofwhether uncertain tax treatments should be considered collectively?If not, why and what alternative do you propose?We agree with the proposal in the draft Interpretation that entities should usejudgement to determine whether each uncertain tax treatment should be consideredindependently, or whether some uncertain tax treatments should be consideredtogether, as part of arriving at the best estimate of the likely outcome.Question 4 – Assumptions for taxation authorities' examinations and the effectof changes in facts and circumstancesThe draft Interpretation requires an entity to assume that a taxation authoritywith the right to examine any amounts reported to it will examine those amountsand will have full knowledge of all relevant information when making thoseexaminations.The draft Interpretation also requires an entity to reassess its judgements andestimates if facts and circumstances change. For example, if an entity concludesthat new information indicates that it is no longer probable that the taxationauthority will accept an uncertain tax treatment, the entity should reflect thischange in its accounting. The expiry of the period in which the taxation authorityPage 4 of 5may examine the amounts reported to it would also be an example of a changein circumstances.Do you agree with the proposal in the draft Interpretation on the assumptions fortaxation authorities' examinations and on changes in facts and circumstances?If not, why and what alternative do you propose?We welcome the emphasis in the draft Interpretation that it should be assumed that ataxation authority with the right to examine any amounts reported to it will examinethose amounts and will have full knowledge of all relevant information when makingthose examinations. This would eliminate any possibility of entities considering 'theprobability of not being detected' when accounting for uncertain tax positions.However, we are concerned that the words “in the period of change” at the end ofparagraph 18, without further explanation, may cause confusion as to whether changesin facts and circumstances relating to uncertain tax positions that occur between theend of the reporting period and the date when the financial statements are authorisedfor issue should be regarded as adjusting or non-adjusting events. Currently weunderstand that it is common to analogise to the guidance in IAS 10.9(a) on courtcases when considering uncertain tax positions, and therefore to regard additionalinformation received after the reporting date as “adjusting” information if it relates touncertain tax positions which existed at the reporting date. However, as currentlyworded, paragraph 18 of the draft Interpretation implies that such information shouldalways be treated as non-adjusting information.We strongly recommend that explicit guidance should be included in the Interpretationto clarify the application of IAS 10 to uncertain tax positions, as it is not uncommon thatinformation relating to uncertain tax positions will emerge in the period between thereporting date and the date of approval of the financial statements. We consider thatgiven the examples in IAS 10, the current common analogy to IAS 10.9(a) is areasonable approach for many uncertain tax positions, except when the particular postperiod end event or change in circumstances could be said to fall into IAS 10.22(h).Question 5 – Other proposalsDisclosureThe draft Interpretation does not introduce any new disclosure requirements, buthighlights the relevance of the existing disclosure requirements in paragraphs122 and 125-129 of IAS 1 Presentation of Financial Statements, paragraph 88 ofIAS 12 and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.TransitionThe draft Interpretation requires an entity to apply its requirements byrecognising the cumulative effect of initially applying them in retained earnings,or in other appropriate components of equity, at the start of the reporting periodin which an entity first applies them, without adjusting comparative information.Full retrospective application is permitted, if an entity can do that without usinghindsight.Page 5 of 5Do you agree with the proposals in the draft Interpretation on the disclosure andthe transition requirements? If not, why and what alternative do you propose?With respect to disclosure, we agree with the emphasis of the draft Interpretation byreferring to the disclosure requirements in IAS 1 and IAS 12. We consider thosedisclosure requirements are adequate and appropriate to provide useful and relevantinformation to users for assessment of uncertain tax positions.However, we do not support the reference to disclosure of contingent liabilities underIAS 37 for uncertain tax positions as found in paragraph 21 of the draft Interpretation:
Firstly, we note that the original intention of this draft Interpretation is to clarify thatentities should follow IAS 12 instead of IAS 37 for uncertain tax positions.Secondly, we are concerned that paragraph 21 of the draft Interpretation is implyingthat any significant uncertainty surrounding the measurement of a liability is itself acontingent liability. In our view, such an assertion would amount to a fundamentalchange in the concept of “contingent liabilities” which is not supported by IAS 37(we note in particular that IAS 37.44 directs the entity to make disclosure under IAS
37.85(b) when there are uncertainties surrounding the measurement of a provision,and does not direct the entity to IAS 37.86). Instead, we consider that in thecircumstances described in paragraph 21 of the draft Interpretation, the entityshould refer to IAS 1.125 for the relevant disclosure requirements.With respect to transition, we support the limited retrospective application (that is,recognising the cumulative effect of initially applying the draft Interpretation in theopening balance of retained earnings instead of adjusting the comparative information).However, the draft Interpretation should be clear that information that was not availablein prior periods should not be adjusted for by way of restatement.~ End ~
Draft IFRIC Interpretation DI/2015/1 Uncertainty over Income Tax Treatments
下载原件Page 1 of 5Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
30 December 2015Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Draft IFRIC Interpretation DI/2015/1 Uncertainty over Income Tax TreatmentsThe Hong Kong Institute of Certified Public Accountants is the only body authorised by law toset and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provide youwith our comments on DI/2015/1.We appreciate the IASB's efforts to reduce the diversity in practice on the recognition andmeasurement of a tax liability or asset in circumstances where there is uncertainty in theapplication of tax law.We broadly support the draft Interpretation. However, we have concerns as to whether it goesfar enough in certain respects. In this regard, we have provided recommendations to improvethe scope of the draft Interpretation, to clarify the recognition threshold for uncertain taxpositions and to clarify the application of IAS 10 as to whether changes in facts andcircumstances relating to uncertain tax positions that occur between the end of the reportingperiod and the date when the financial statements are authorised for issue should be regardedas adjusting or non-adjusting events.In addition, we have serious concerns about the guidance in paragraph 21 of the draftInterpretation which implies that measurement uncertainty should be regarded as a form ofcontingent liability. We do not consider that paragraph 21 is consistent with IAS 37 andconsider instead that significant measurement uncertainty relating to uncertain tax positionsshould be disclosed under IAS 1.125.Our responses to the questions raised in DI/2015/1 are set out in more detail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me.Yours sincerely,Christina NgHead of Financial ReportingCN/BLEncl.Page 2 of 5Detailed comments on DI/2015/1 Uncertainty over Income Tax TreatmentsQuestion 1 – Scope of the draft InterpretationThe draft Interpretation provides guidance on accounting for current anddeferred tax liabilities and assets in circumstances in which there is uncertaintyover income tax treatments. Such uncertain tax treatments may affect taxableprofit (tax loss), tax bases, tax credits or tax rates that are used to recognise andmeasure current or deferred tax liabilities or assets in accordance with IAS 12Income Taxes.Do you agree with the proposed scope of the draft Interpretation? If not, why andwhat alternative do you propose?We agree that currently there is diversity in practice as to whether IAS 12 IncomeTaxes or IAS 37 Provisions, Contingent Liabilities and Contingent Assets should beapplied to uncertain tax positions. Therefore we broadly agree with the scope of thedraft Interpretation and would like to make further recommendations on the scope.We recommend that the scope of the draft Interpretation be extended to cover theaccounting for interest and penalties on uncertain tax positions, as there is alsodiversity in practice on these matters. We also recommend that the IASB clarifieswhether the draft Interpretation is applicable to business combinations in which theacquiree has uncertain tax positions, and to taxes that are not within the scope of IAS12 (for example, duties and value added tax). If these items are not within the scope ofthis draft Interpretation, the IASB should explicitly state so in the scope.Question 2 – When and how the effect of uncertainty over income tax treatmentsshould be included in determination of taxable profit (tax loss), tax bases,unused tax losses, unused tax credits and tax ratesThe draft Interpretation requires an entity to consider whether it is probable thata taxation authority will accept an uncertain tax treatment, or group of uncertaintax treatments, that it used or plans to use in its income tax filings.If the entity concludes that it is probable that the taxation authority will accept anuncertain tax treatment, the draft Interpretation requires the entity to determinetaxable profit (tax loss), tax bases, unused tax losses, unused tax credits or taxrates consistently with the tax treatment included in its income tax filings.If the entity concludes that it is not probable that the taxation authority willaccept an uncertain tax treatment, the draft Interpretation requires the entity touse the most likely amount or the expected value in determining taxable profit(tax loss), tax bases, unused tax losses, unused tax credits and tax rates. Themethod used should be the method that the entity concludes will provide thebetter prediction of the resolution of uncertainty.Do you agree with the proposal in the draft Interpretation on when and how theeffect of uncertainty should be included in the determination of taxable profit(tax loss), tax bases, unused tax losses, unused tax credits and tax rates? If not,why and what alternative do you propose?AppendixPage 3 of 5We agree that guidance should be provided about how uncertainty should be takeninto account in determining the tax amounts. We also agree that the draft Interpretationshould contain an explicit linkage to paragraph 46 of IAS 12, which states that the taxamounts 'shall be measured at the amount expected to be paid to (recovered from) thetaxation authorities'.However, we consider the draft Interpretation contains limited guidance on how theterm 'probable', in paragraph 15, should be applied in practice. Although the term'probable' is defined in the Glossary as 'more likely than not', we note that there is noconsistent application of this definition. Therefore, the draft Interpretation should clarifyhow 'probable' is to be applied in measuring the tax amounts within the context of IAS
12.46. We also request that the IASB clarifies how the term 'probable' can be appliedin the context of tax assets as well as for tax liabilities as it is not clear whether therecognition threshold for tax assets and tax liabilities are the same.We strongly suggest that the IASB uses the term 'best estimate' instead of the term'better prediction' in paragraph 16. We consider it would be more appropriate to usefamiliar terminology (in this case, by referring to the terminology in IAS 37) given thatthis is an interpretation of the existing standards. Introducing new terminology withoutexplaining the term could lead to unintended consequences.Question 3 – Whether uncertain tax treatments should be considered collectivelyThe draft Interpretation requires an entity to use judgement to determinewhether each uncertain tax treatment should be considered independently, orwhether some uncertain tax treatments should be considered together, in orderto determine taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax rates.Do you agree with the proposal in the draft Interpretation on the determination ofwhether uncertain tax treatments should be considered collectively?If not, why and what alternative do you propose?We agree with the proposal in the draft Interpretation that entities should usejudgement to determine whether each uncertain tax treatment should be consideredindependently, or whether some uncertain tax treatments should be consideredtogether, as part of arriving at the best estimate of the likely outcome.Question 4 – Assumptions for taxation authorities' examinations and the effectof changes in facts and circumstancesThe draft Interpretation requires an entity to assume that a taxation authoritywith the right to examine any amounts reported to it will examine those amountsand will have full knowledge of all relevant information when making thoseexaminations.The draft Interpretation also requires an entity to reassess its judgements andestimates if facts and circumstances change. For example, if an entity concludesthat new information indicates that it is no longer probable that the taxationauthority will accept an uncertain tax treatment, the entity should reflect thischange in its accounting. The expiry of the period in which the taxation authorityPage 4 of 5may examine the amounts reported to it would also be an example of a changein circumstances.Do you agree with the proposal in the draft Interpretation on the assumptions fortaxation authorities' examinations and on changes in facts and circumstances?If not, why and what alternative do you propose?We welcome the emphasis in the draft Interpretation that it should be assumed that ataxation authority with the right to examine any amounts reported to it will examinethose amounts and will have full knowledge of all relevant information when makingthose examinations. This would eliminate any possibility of entities considering 'theprobability of not being detected' when accounting for uncertain tax positions.However, we are concerned that the words “in the period of change” at the end ofparagraph 18, without further explanation, may cause confusion as to whether changesin facts and circumstances relating to uncertain tax positions that occur between theend of the reporting period and the date when the financial statements are authorisedfor issue should be regarded as adjusting or non-adjusting events. Currently weunderstand that it is common to analogise to the guidance in IAS 10.9(a) on courtcases when considering uncertain tax positions, and therefore to regard additionalinformation received after the reporting date as “adjusting” information if it relates touncertain tax positions which existed at the reporting date. However, as currentlyworded, paragraph 18 of the draft Interpretation implies that such information shouldalways be treated as non-adjusting information.We strongly recommend that explicit guidance should be included in the Interpretationto clarify the application of IAS 10 to uncertain tax positions, as it is not uncommon thatinformation relating to uncertain tax positions will emerge in the period between thereporting date and the date of approval of the financial statements. We consider thatgiven the examples in IAS 10, the current common analogy to IAS 10.9(a) is areasonable approach for many uncertain tax positions, except when the particular postperiod end event or change in circumstances could be said to fall into IAS 10.22(h).Question 5 – Other proposalsDisclosureThe draft Interpretation does not introduce any new disclosure requirements, buthighlights the relevance of the existing disclosure requirements in paragraphs122 and 125-129 of IAS 1 Presentation of Financial Statements, paragraph 88 ofIAS 12 and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.TransitionThe draft Interpretation requires an entity to apply its requirements byrecognising the cumulative effect of initially applying them in retained earnings,or in other appropriate components of equity, at the start of the reporting periodin which an entity first applies them, without adjusting comparative information.Full retrospective application is permitted, if an entity can do that without usinghindsight.Page 5 of 5Do you agree with the proposals in the draft Interpretation on the disclosure andthe transition requirements? If not, why and what alternative do you propose?With respect to disclosure, we agree with the emphasis of the draft Interpretation byreferring to the disclosure requirements in IAS 1 and IAS 12. We consider thosedisclosure requirements are adequate and appropriate to provide useful and relevantinformation to users for assessment of uncertain tax positions.However, we do not support the reference to disclosure of contingent liabilities underIAS 37 for uncertain tax positions as found in paragraph 21 of the draft Interpretation:
Firstly, we note that the original intention of this draft Interpretation is to clarify thatentities should follow IAS 12 instead of IAS 37 for uncertain tax positions.Secondly, we are concerned that paragraph 21 of the draft Interpretation is implyingthat any significant uncertainty surrounding the measurement of a liability is itself acontingent liability. In our view, such an assertion would amount to a fundamentalchange in the concept of “contingent liabilities” which is not supported by IAS 37(we note in particular that IAS 37.44 directs the entity to make disclosure under IAS
37.85(b) when there are uncertainties surrounding the measurement of a provision,and does not direct the entity to IAS 37.86). Instead, we consider that in thecircumstances described in paragraph 21 of the draft Interpretation, the entityshould refer to IAS 1.125 for the relevant disclosure requirements.With respect to transition, we support the limited retrospective application (that is,recognising the cumulative effect of initially applying the draft Interpretation in theopening balance of retained earnings instead of adjusting the comparative information).However, the draft Interpretation should be clear that information that was not availablein prior periods should not be adjusted for by way of restatement.~ End ~