Current income tax refers to the income taxes that are either payable to or recoverable from tax authorities, relating to the taxable profit or tax loss for a period (IAS 12.5). Current income tax, along with deferred income tax, constitutes the total tax expense shown in the income statement.
If the taxes paid for current and prior periods are more than what is due, the excess is recognised as an asset. Conversely, when the amount due exceeds what has been paid, it is recognised as a liability (IAS 12.12).
Measurement
The measurement of current tax assets or liabilities is based on the expected amount to be paid to or recovered from taxation authorities. This calculation uses the tax rates and laws that are in effect or substantially enacted by the end of the reporting period (IAS 12.46).
For guidance on recognising income tax expense in interim financial statements, refer to IAS 34.
Presentation
Refer to the general rules for the presentation of tax effects in P/L and OCI.
Withholding tax on dividends
Withholding tax on dividends is allocated to equity as part of the dividends (IAS 12.65A). However, distinguishing whether a tax is a withholding tax (not precisely defined in IAS 12) or an additional income tax imposed on an entity can be challenging. This distinction is crucial because an additional income tax due to dividend payments should be recognised in P/L and not in equity (IAS 12.52A-B).
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Offsetting current tax assets and liabilities
An entity can only offset current tax assets and liabilities if:
- It has a legally enforceable right to set off the recognised amounts, and
- It intends to either settle on a net basis or realise the asset and settle the liability simultaneously (IAS 12.71-72).
In consolidated financial statements, offsetting of current tax assets and liabilities across different subsidiaries is permissible only if the subsidiaries have a legal right to make or receive a single net payment and intend to do so, or plan to realise the asset and settle the liability at the same time (IAS 12.73).
More about IAS 12
See other pages relating to IAS 12: