IAS 12 Income Taxes

IAS 12 prescribes the accounting treatment for income taxes. Income taxes include all domestic and foreign taxes that are based on taxable profits.

Current tax for current and prior periods is, to the extent that it is unpaid, recognised as a liability. Overpayment of current tax is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

IAS 12 requires an entity to recognise a deferred tax liability or (subject to specified conditions) a deferred tax asset for all temporary differences, with some exceptions.  Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. 

A deferred tax liability arises if an entity will pay tax if it recovers the carrying amount of another asset or liability.  A deferred tax asset arises if an entity:

• will pay less tax if it recovers the carrying amount of another asset or liability; or
• has unused tax losses or unused tax credits.

In April 2001 the International Accounting Standards Board (Board) adopted IAS 12 Income Taxes, which had originally been issued by the International Accounting Standards Committee in October 1996. IAS 12 Income Taxes replaced parts of IAS 12 Accounting for Income Taxes (issued in July 1979).

In December 2010 the Board amended IAS 12 to address an issue that arises when entities apply the measurement principle in IAS 12 to temporary differences relating to investment properties that are measured at fair value. That amendment also incorporated some guidance from a related Interpretation (SIC‑21 Income Taxes—Recovery of Revalued Non‑Depreciable Assets).

In January 2016 the Board issued Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) to clarify the requirements on recognition of deferred tax assets related to debt instruments measured at fair value.

In May 2021 the Board issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.

In May 2023 the Board issued International Tax Reform—Pillar Two Model Rules. The amendments introduced a temporary exception to the requirements to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes. The amendments also introduced targeted disclosure requirements for affected entities.

Other Standards have made minor consequential amendments to IAS 12. They include IFRS 11 Joint Arrangements (issued May 2011), Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012), IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013), IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 9 Financial Instruments (issued July 2014), IFRS 16 Leases (issued January 2016), Annual Improvements to IFRS Standards 2015–2017 Cycle (issued December 2017) and Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018).