Recognition of current tax liabilities and current tax assets
Current income tax is the amount of income taxes payable to (or recoverable from) tax authorities in respect of the taxable profit (tax loss) for a period (IAS 12.5). Current income tax and deferred income tax comprise total tax expense in the income statement. Current tax for current and prior periods is recognised as a liability. Conversely, if the amount already paid for the current and prior periods exceeds the amount due, the difference is recognised as an asset (IAS 12.12).
Current tax assets or liabilities are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period (IAS 12.46). See also uncertain tax treatments.
IAS 34 has some discussion on recognition of income tax expense in interim financial statements.
See the general rule on presentation of tax effects in P/L and OCI.
Withholding tax on dividends
Withholding tax on dividends is charged to equity as a part of the dividends (IAS 12.65A). It is however not always clear whether a tax is a withholding tax (unfortunately not precisely defined in IAS 12) or an additional income tax levied on an entity. The significance of that distinction is that an additional income tax levied on an entity as a result of dividend payments is recognised in P/L and not in equity (IAS 12.52A-B).
Offsetting current tax assets and liabilities
Current tax assets and current tax liabilities are offset if, and only if, the entity (IAS 12.71-72):
- has a legally enforceable right to set off the recognised amounts; and
- intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
In consolidated financial statements, offsetting of current tax assets and liabilities of different subsidiaries is made if, and only if, the entities concerned have a legally enforceable right to make or receive a single net payment and the entities intend to make or receive such a net payment or to recover the asset and settle the liability simultaneously (IAS 12.73).
More about IAS 12
See other pages relating to IAS 12: