Tax assessments results

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Asnake E
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Joined: 02 Oct 2019, 03:28

Tax assessments results

Post by Asnake E »

Hi,
An antity have been filing it's profit tax returns annually and the VAT returns every three months for the years ended 7 July 2019 and 7 July 2020. The Government has assessed the entity for VAT and profit tax for these two years and came up with additional tax, penalty and interest on the unpaid taxes and served the Entity with notification of the result of the assessment in January 2022. As per the notifications, these additional taxes results from disallowing of some expenses for tax as the Government believes that the atatched supplier invoices were not appropriate, some of the expenses charged to the business were for the shareholders personal use, VAT was not collected from the shareholder's use of merchandises of the entity, etc.
The entity has accepted the results of the assessments and agrees with the Government to pay the taxes, interest and penalty on installment bases in the next twelve months.
My question is: how should the results of the tax assessment and the payments/settlements of the taxes be accounted for? As a prior year error by restarting the prior year financial statements or as a current reporting year (year ended 07 July 2022) expenses?
pub_acco
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Re: Tax assessments results

Post by pub_acco »

If the additional charge resulted from prior year errors, restate the prior year financials. Or, if the prior year tax calculation was a reasonable estimate but has come out a different result, then treat the tax charge as a change in estimate occurring in the current year. Generally speaking, tax provisions involve a considerable degree of estimation, so it's not uncommon at all to recognize additional charges in current year PL, but it depends on the facts and circumstances.
Asnake E
Posts: 213
Joined: 02 Oct 2019, 03:28

Re: Tax assessments results

Post by Asnake E »

Thank you.
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Marek Muc
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Re: Tax assessments results

Post by Marek Muc »

I agree with pub_acco, as per IAS 8 errors arise from a failure to use, or misuse of, reliable information that (a) was available when financial statements for those periods were authorised for issue; and (b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

re. shareholders personal use of company's cash/assets - if this is true, then it's definitely a prior period error as you should have charged this to equity as shareholders distributions (another question is whether they are material) - so this concerns not only VAT, but the underlying expense too
Asnake E
Posts: 213
Joined: 02 Oct 2019, 03:28

Re: Tax assessments results

Post by Asnake E »

Thank you. Very helpful.
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