Uncertain tax treatments (IFRIC 23): Head office costs — 20X4 audit

Context

The Ardelys group (fictitious entities) produces laboratory equipment. The parent, Ardelys SA, is taxed at 25%; its subsidiaries are based in Varnessa (a fictitious low-tax country) and in Escalvia (a fictitious country). You are preparing the consolidated IFRS tax closing for the year ended 31 December 20X6, financial statements authorised on 2 March 20X7. The ordinary current tax of each entity and the deferred tax have been recorded; the uncertain tax treatments, the Pillar Two top-up tax and the tax note remain to be dealt with. The tax amounts, the probabilities and the Pillar Two calculations are case data.

Assignment

Uncertain tax treatments workpaper (Ardelys group, 20X6).

Purpose of the workpaper

For an uncertain tax treatment, determine the unit of account, assess whether acceptance by a fully informed taxation authority is probable, measure the effect of the uncertainty using the method that better predicts its resolution (most likely amount or expected value), recognise the tax adjustment and prepare the information on tax contingencies.

Questions of the file covered by this workpaper

• Which uncertain tax treatments exist, and should they be assessed separately or together?
• Is it probable that the authority will accept each treatment?
• Calculate the expected value of the positions not probably accepted.
• Calculate the most likely amount of these positions.
• Which method should be used for each position, and how should the end of the 20X4 audit be treated?
• Record the closing entries.

• MemoClosing memo of the tax departmentOpen
• ScheduleAdvisers' summary on transfer pricingOpen
• MemoMemo from the tax directorOpen
• DocumentNotice of audit closureOpen
• MemoPillar Two memoOpen
• ScheduleReconciliation dataOpen
• ScheduleSchedule of deferred tax balancesOpen
• ExtractExtract from the non-financial reportOpen