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ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

Ostra Co has an uncertain tax position: it claimed a deduction that the tax authority may reject. Ostra concludes it is probable that the authority will accept the treatment used in its tax filing. How should Ostra measure current tax under IFRIC 23?

Ostra should measure current tax consistently with the treatment in its tax filing. IFRIC 23 only requires an adjustment, using the most likely amount or expected value, when it is not probable that the tax authority will accept the uncertain treatment.

  1. AInclude a provision at the most likely amount of the disallowed deduction
  2. BDetermine taxable profit consistently with the tax treatment used in its tax filingCorrect
  3. CRecognise the probability-weighted expected tax on the deduction
  4. DRecognise the tax benefit only when the authority has formally accepted the claim

Explanation

IFRIC 23 says that if it is probable the tax authority will accept an uncertain treatment, the entity determines taxable profit, tax bases, losses and rates consistently with the treatment in its filing. A provision using most likely amount or expected value is needed only when acceptance is not probable. Waiting for formal acceptance is not required.

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