Uncertain tax treatments: identify and assess

Learning objectives

• Identify an uncertain tax treatment and the assumption that it will be examined by a taxation authority with full knowledge of all relevant information.L2
• Determine the unit of account (treatment considered separately or together) that better predicts the resolution of the uncertainty.L3
• Assess the probability that a tax treatment will be accepted and draw the consequences for tax.L3, L4

Normative references

The syntheses of the reference register are written in French: only the paragraph reference is shown here.

23 questions

• An uncertain tax treatment is a tax treatment for which there is uncertainty over whether the relevant taxation authority will accept it under tax law.L2
• Within the meaning of IFRIC 23, a court ruling on whether a tax treatment is acceptable is never a taxation authority.L2
• Arquevin may take into account the fact that the taxation authority in its country audits on average only one return in twenty when assessing the effect of an uncertain tax treatment.L2
• Where there is an uncertain tax treatment, the entity recognises and measures its current or deferred tax applying IAS 12, on the basis of the amounts determined under IFRIC 23.L2
• If the entity concludes that it is probable that the authority will accept an uncertain tax treatment, it determines its taxable profit, tax bases and tax rates consistently with the treatment used or planned in its tax filings.L3
• Which of these questions is among those addressed by IFRIC 23?L2
• What do 'tax treatments' cover within the meaning of IFRIC 23?L2
• On what criterion does the entity decide whether to consider an uncertain tax treatment separately or together with others?L3
• Belcastor concludes that it is not probable that the authority will accept the deduction of an intragroup restructuring charge. What is the consequence?L3
• What assumptions does the entity make about the examination of its tax treatments by the authority?L2
• Which factors may the entity consider in deciding the unit of account of a tax uncertainty?L3
• When acceptance of an uncertain tax treatment is not probable, which amounts may be affected by the effect of the uncertainty?L3
• The Calvidra group charges its subsidiaries brand royalties, management fees and IT services, all based on the same transfer pricing study. The authority usually examines these flows together, in the light of that study. Which unit of account should be used?L3
• Dorvenne has two uncertainties: whether a project is eligible for a research tax credit, assessed by a specialised unit on a technical file, and whether compensation paid to a former director is deductible, checked during general audits. The tax director proposes treating them together 'because one should be won and the other lost'. Which unit of account should be used?L3
• Estriva deducted a clean-up provision in 20X5. Two independent tax opinions and settled case law conclude that the deduction will be accepted by a fully informed authority (case data). Which treatment applies in the 20X5 financial statements?L3
• Falquenne deducted in 20X5 interest paid to a sister company; according to its advisers, it is not probable that a fully informed authority will accept this deduction (case data). How is the uncertainty reflected in the 20X5 financial statements?L4
• Gernasse claims tax amortisation on an acquired brand, whereas a fully informed authority would probably not accept this amortisation (case data). The brand is not amortised for accounting purposes. Which amount does the uncertainty directly affect for deferred tax?L4
• Hollivane's year-end file states: 'questionable deduction of 400,000; acceptance unlikely if audited, but audit probability only 10%; no additional tax recognised'. Where is the error?L3
• Isparo, judging acceptance of a deduction unlikely, recognised 180,000 as a 'charge to provisions for risks' (operating expense) and as a 'provision for tax risks' in liabilities. Where is the error?L3
• The Jorvella group presents a single 'net' uncertainty of 50,000, obtained by grouping a 350,000 risk of rejection of transfer prices in country P and a 300,000 refund claim on a tax in country Q, 'to reflect the overall exposure'. Where is the error?L4
• The Kervadin group deducted in 20X5 head-office costs recharged to three subsidiaries in the same country, using an allocation key that the authority challenged during an audit of another company in the sector. Its advisers consider rejection more likely than acceptance; Kervadin argues that it has not been audited for eight years. Write an analysis memo (unit of account, examination assumption, probability of acceptance, consequence), distinguishing rule, case data and judgement.L4
• Lumbrac plans to deduct in full, in its 20X5 return not yet filed, an investment in software, whereas the authority's published practice (case data) requires it to be spread over three years; there is no case law. Explain whether this treatment falls within IFRIC 23 and what information is needed to conclude on its acceptance.L3
• The Mercadine group has decided to consider together three uncertain tax treatments linked to the same reorganisation. How do the provisions of IFRIC 23 referring to 'an uncertain tax treatment' then apply?L3