Deferred tax

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Yasaswi Gomes
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Deferred tax

Post by Yasaswi Gomes »

Hi,

This is the only area where I lack lots of expertise. Can someone please explain me, if there are any chances of a current tax to become deferred tax asset or a liability?


Txs.
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

wow, so you must be a hell of an expert if deferred tax is the only area where you lack lots of expertise :lol:

have a read:
https://ifrscommunity.com/knowledge-base/deferred-tax/
https://ifrscommunity.com/knowledge-bas ... ncome-tax/
Yasaswi Gomes
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Re: Deferred tax

Post by Yasaswi Gomes »

@ Marek Muk

Thank you for your answer. I tried to join Ernst and Young into audit process with my MSc. in International Accounting and Finance. The HR promised to call me back and it is 2 years since I’m waiting for my job. Otherwise, I would have picked up all of these long time ago. Meantime, I joined as a Financial administrator in an Indian MNC group companies. It’s ERP and far away from home, so I quit it. I’m currently planning to join another firm when ever I get a chance, and during this period I am answering International Financial Reporting Standards and B.Com accounts online. It took me few months to understand how to write accounts and I’m just a part accountant. I can even deal with advance taxation- but not with complete Deferred Taxes analysis. Similarly, I know payroll process, but not employee benefits computations completely. Apart from this, I know treatments for Biological assets as well and intend to finish off IAS 12 and 19 soon. This community is offering proficient IFRS solutions and answering more complexities is what I have noticed.
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nauman
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Re: Deferred tax

Post by nauman »

Yasaswi Gomes wrote: 17 May 2020, 05:36 Hi,

This is the only area where I lack lots of expertise. Can someone please explain me, if there are any chances of a current tax to become deferred tax asset or a liability?


Txs.
In layman terms, its the other way around, deferred tax liability and deferred tax asset eventually become current tax liability or asset (more like an allowable deduction). This is a very crude way of explaining it as deferred tax is nothing except smoothening out tax charge because of temporary differences.
JRSB
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Re: Deferred tax

Post by JRSB »

Always amuses me when the press assume that 'deferred tax' means choosing to pay tax later.

When Arsenal FC built a new stadium it resulted in a deferred tax liability, which one newspaper claimed was an example of big businesses exploiting tax loopholes (because they inferred that they were deferring the payment of otherwise due taxes). Oh dear.
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

great story! my experience is that only accountants understand deferred tax, even tax advisors usually know very little, if anything at all
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nauman
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Re: Deferred tax

Post by nauman »

Marek Muc wrote: 27 May 2020, 22:37 great story! my experience is that only accountants understand deferred tax, even tax advisors usually know very little, if anything at all
That's because it is simply an accounting adjustment. Has very little to do with tax legislation.
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

I kind of disagree, you need to know tax implications to properly recognise deferred tax, so at least some basic understanding on the tax advisor's side would greatly help

the same with provisions, I expect legal advisors to know the basics of IAS 37 and I personally know a few who live up to this expectation :)

PS. there's no need to quote a previous post ;)
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Re: Deferred tax

Post by JRSB »

DT seems to be well practiced for fixed asset timing differences, unused losses, fair value uplifts etc. But not for more complex areas like DT on share based payment, subsidiary reserves, and so on.
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

you're right, every group has 'outside' temporary differences, but hardly ever they are dealt with consciously
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nauman
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Re: Deferred tax

Post by nauman »

I just read through the bit about outside temporary differences. I understand the bit about temporary differences arising because of impairment of goodwill and investment in subsidiary (in consolidated and separate financial statements, respectively) but for the consolidated financial statements wouldn't the tax base in consolidated financial statements be adjusted with loss for the year as well?
Last edited by nauman on 28 May 2020, 17:49, edited 1 time in total.
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

Usually not, but this of course depends on tax jurisdiction. In your country, if a subsidiary incurs a loss, does it impact the tax base of the investment in parent's "tax book"?

PS. please stop quoting previous posts, it's redundant, just hit the 'post reply' button
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nauman
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Re: Deferred tax

Post by nauman »

There is no such thing as investment in a subsidiary in consolidated financial statements. What we have are the net assets of the subsidiary and you would compare that against the tax base of the net assets (which should be reduced by amount of loss or at the very least the tax loss of the subsidiary).
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Marek Muc
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Re: Deferred tax

Post by Marek Muc »

but then, when a parent e.g. sells its investment in subsidiary, what is the tax base of the assets sold from the group's perspective? in other words, what amount will be deductible for tax purposes against the sale price received by the parent/group? will it be a/ the tax base of individual assets held by this subsidiary and brought to consolidation or b/ the price paid by the parent in the past when this subsidiary was acquired?
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Re: Deferred tax

Post by JRSB »

my post on 1/3 was referring to undistributed profits held in the subsidiary, IAS 12 para 38 (a).
I wonder if anyone has ever made an accounting entry for this.... :|

Temporary differences arise when the carrying amount of investments in subsidiaries, branches and associates or interests in joint arrangements (namely the parent or investor’s share of the net assets of the subsidiary, branch, associate or investee, including the carrying amount of goodwill) becomes different from the tax base (which is often cost) of the investment or interest. Such differences may arise in a number of different circumstances, for example:
(a) the existence of undistributed profits of subsidiaries, branches, associates and joint arrangements;
(b) changes in foreign exchange rates when a parent and its subsidiary are based in different countries; and
(c) a reduction in the carrying amount of an investment in an associate to its recoverable amount.
In consolidated financial statements, the temporary difference may be different from the temporary difference associated with that investment in the parent’s separate financial statements if the parent carries the investment in its separate financial statements at cost or revalued amount.
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