Proposed Amendments to IAS 12

The Exposure Draft proposes to add guidance to the Standard that would clarify the following issues where there is currently diversity in practice:

• do decreases in the carrying amount of a fixed-rate debt instrument for which the principal is paid on maturity always give rise to a deductible temporary difference if this debt instrument is measured at fair value and if its tax base remains at cost?
• does an entity assume that it will recover an asset for more than its carrying amount when estimating probable future taxable profit against which deductible temporary differences are assessed for utilisation if such recovery is probable? (relevant when taxable profit from other sources is insufficient for the utilisation of the deductible temporary differences related to debt instruments measured at fair value)
• when an entity assesses whether it can utilise a deductible temporary difference against probable future taxable profit, does that probable future taxable profit include the effects of reversing deductible temporary differences?
• does an entity assess whether a deferred tax asset is recognised for each deductible temporary difference separately, or in combination with other deductible temporary differences?

In our letter we agree with the analysis underlying the Exposure Draft's proposed amendments and the conclusions reached in the proposed Illustrative Example. We also note however that the proposed amendments are detailed and extensive but address only a narrow fact pattern and would prefer the amendments to have a broader and more principle-based focus. That said, we acknowledge that the Board has initiated a research project on income taxes and that this may be a more suitable vehicle to consider the need for broader clarifications.