CERTYNEX IFRS ACADEMY

Vallon SA has a statutory tax rate of 30%. It estimates that its weighted average annual effective tax rate for the year will be 26%, taking permanent items into account (case data). Its profit before tax for the half-year is EUR 1,500,000 and it recognised EUR 450,000 of income tax expense in the half-year (30% × EUR 1,500,000). What is the error?

The expense for the half-year is profit before tax multiplied by the estimated annual effective rate, that is EUR 390,000 (1,500,000 × 26%).

The expense for the half-year must be set at half of the estimated annual tax expense, without regard to the profit before tax earned in the half-year.

There is no income tax expense to recognise in the half-year: tax is recognised at the annual closing, when the taxable profit of the year is known.

The expense for the half-year is the highest rate of the scale band applicable to the profit of the year, applied to all the profit of the half-year.