Scope of IAS 12 Income Taxes

IAS 12 prescribes accounting for income taxes (current and deferred). Income taxes include all domestic and foreign taxes which are based on taxable profits (IAS 12.2).

Taxes other than income taxes are accounted for under other IFRS, e.g. IAS 37 or IAS 19 (payroll taxes).

As mentioned above, only those taxes that are based on taxable profits are in the scope of IAS 12. IFRIC update from March 2006 clarifies that the taxable profit may be calculated differently that accounting profit, but it still needs to be a profit. All taxes based on revenue or assets’ value are not income taxes under IFRS and are therefore recognised as revenue expense within operating profit.

Investment tax credits are excluded from the scopes of IAS 12 (IAS 12.4) and IAS 20 (IAS 20.20) and are  effectively not covered by IFRS. Entities can therefore develop their own accounting policy based on IAS 8. It is most often the case that investment tax credits are accounted for as a reduction of income tax expense, but other approaches are also possible. The approach to be adopted depends on how strongly the realisation of investment tax credit is based on available taxable profits and whether such credits are treated as a taxable income themselves.

Some entities have to pay interest and penalties related to income taxes and it is not clear whether they should be presented as an income tax expense or as an expense in arriving at profit before tax. IAS 12 does not cover this and therefore it is a matter of a policy choice. IFRIC considered whether to add this issue on its agenda, but decided not to (see March 2017 IFRIC update).

Disclosure requirements are set out in paragraphs IAS 12.79-88.

See other pages relating to IAS 12:

IAS 12 Income Taxes: Scope
IAS 12 Income Taxes: Deferred Tax
IAS 12 Income Taxes: Current Tax

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