November Tax Alert


Uncertain tax positions – it’s now time to report these in your financial statements

Tax Alert - November 2019

By Iain Bradley and Belinda Spreeuwenberg

New accounting standards applying in 2018 and 2019 to for-profit entities that report under Tier 1 and Tier 2 (namely revenue from contracts with customers, financial instruments, and leases) have kept many accountants preoccupied, however there is a new interpretation that has not received the same level of attention.

NZ IFRIC 23 Uncertainty over Income Tax Treatments clarifies how to reflect uncertainties relating to income taxes in financial statements, and applies for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted.

We wrote about IFRIC 23 in our Tax Alert of November 2017, over two years before entities were required to comply with the interpretation. To summarise, the points to be aware of are:

  • Uncertainty exists when it is uncertain whether the relevant tax authority will accept a tax treatment under tax law.
  • Judgement is required to determine whether an entity should consider each uncertain tax treatment independently, or together with one or more other uncertain tax treatments.
  • An entity should assume that the tax authority will examine amounts it has a right to examine and will have full knowledge of all related information when considering uncertain tax treatments.
  • Where the entity concludes that it is not probable that a tax authority would accept an uncertain tax treatment, an entity must reflect the effect of the uncertainty in their financial statements using the most likely amount or the expected value of the uncertain tax treatment.
  • Changes in facts and circumstances on which an earlier judgement or estimate of an uncertain tax treatment are based should be reflected as a change in accounting estimate. Examples include changes that arise upon the release of an Inland Revenue interpretation, court judgements, or the expiry of a tax authority’s right to examine or re-examine a tax treatment.
  • On initial application of NZ IFRIC 23, an entity can either restate comparatives if possible to do so without the use of hindsight, or adjust the cumulative effect of initially applying the interpretation in the opening balance of retained earnings.
  • NZ IFRIC 23 does not introduce new disclosure requirements and instead the interpretation highlights disclosures that should be considered under other existing accounting standards.

If you haven’t already done so, it is now time to consider uncertain tax positions and the extent these should be reported in your financial statements.
If you have any questions or comments, please contact your usual Deloitte advisor.

Tax Alert - November 2019
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