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WorkpaperIAS 12 — Income TaxesL2 · L3 · L4

Uncertain tax treatments (IFRIC 23)

6 missions12 sections to document40 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective 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.

12 sections · 27 blocks · 2 calculations · 2 entries

  • IAS 12 §88

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

6 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Tax closing of an international group: uncertain tax treatments, Pillar Two, components and reconciliation of tax expense
Case tasks documented here
  • 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.
1

Inputs

Inputs
  • Tax treatment used or planned in the tax filings, period and authority concerned

    TextRequired

    SERVICES_INVOICED_BY_PARENT_TO_SUBSIDIARIES

  • Reporting date

    DateRequired

    20X6-12-31

  • Opinions of advisers, case law, exchanges with the authority, history of tax examinations

    TextRequired

    ADJUSTMENT_PROBABLE_WIDE_RANGE_OF_OUTCOMES

  • Possible outcomes: additional tax compared with the treatment filed and probability (%)

    Table

    SCENARIO_1 · ADVISERS_SCENARIO_1 · 0 · 20 | SCENARIO_2 · ADVISERS_SCENARIO_2 · 300,000 · 50 | SCENARIO_3 · ADVISERS_SCENARIO_3 · 600,000 · 20 | SCENARIO_4 · ADVISERS_SCENARIO_4 · 1,000,000 · 10

    Case data or management estimate: scenarios and probabilities, adding up to 100. This model sets no probability.

  • Amount already recognised for this uncertainty (opening)

    Number

    0

2

Supporting evidence

Evidence
  • Evidence obtained and referenced (category, document reference)

    EvidenceRequired

3

Identification of the uncertain treatment

Analysis

IFRIC 23 §3IFRIC 23IFRIC 23 §5

  • Points examined

    ChecklistRequired

    • Treatment used or planned in the tax filings
    • Acceptance by the relevant authority (court included) uncertain
    • Current or deferred tax recognised and measured under IAS 12, on the amounts determined under the interpretation
    • Amounts affected: taxable profit, tax bases, unused losses and credits, rates
4

Unit of account and probability of acceptance

Analysis

IFRIC 23 §6IFRIC 23 §7IFRIC 23IFRIC 23 §9IFRIC 23 §10

  • Points examined

    ChecklistRequired

    • Treatment considered separately or together according to the approach that better predicts the resolution
    • Treatments grouped: any reference to the uncertain treatment means the group so formed
    • Examination assumed by a fully informed authority; detection risk ignored
    • Acceptance probable: amounts consistent with the treatment filed
    • Acceptance not probable: effect of the uncertainty reflected in the amounts
5

Measurement and changes

Analysis

IFRIC 23 §11IFRIC 23 §12IFRIC 23 §13IFRIC 23 §14IFRIC 23 §A1IFRIC 23 §A2IFRIC 23 §A3

  • Points examined

    ChecklistRequired

    • Method chosen according to the shape of the outcomes: most likely amount (binary or concentrated), expected value (dispersed)
    • Consistent judgements and estimates for current and deferred tax
    • Reassessment if facts change or in the event of new information
    • Relevance and effect of the new information assessed under the law applicable to each treatment
    • Examples: examination or action by the authority, change in its rules, expiry of its right to examine
    • Absence of agreement or disagreement by the authority: on its own, unlikely to be a change
    • Effect treated as a change in estimate (IAS 8); after the reporting date, IAS 10 determines whether to adjust
6

Measurement of the uncertainty

Calculations

IFRIC 23 §11

  • Expected value (probability-weighted sum)

    Calculation

    370,000

    Possible outcomes: additional tax compared with the treatment filed and probability (%)

  • Most likely amount

    Calculation

    300,000

    Possible outcomes: additional tax compared with the treatment filed and probability (%)

7

Journal entries

Entries
  • Increase in current tax for the uncertainty

    Entry

    AccountDebitCredit
    Current tax expense370,000
    Current tax liability370,000

    Teaching assumption: the uncertainty affects taxable profit of the period (current tax); if it affects a tax base, the effect is on deferred tax, with consistent judgements (IFRIC 23 para. 12). The tax is recognised under IAS 12, not as a provision.

  • Release of the current tax recognised for the uncertainty

    Entry

    Debit Current tax liability ← Release of tax recognised in the period (amount already recognised − effect retained) ; Credit Current tax income ← Release of tax recognised in the period (amount already recognised − effect retained)

    UNCERTAIN_TAX_RELEASE family of the entry map (release as a change in estimate, IFRIC 23 para. 14). Input convention: only one of the two amounts (increase or release) is filled in per instance; the other stays empty.

8

Unit of account, acceptance and method

Judgment

IFRIC 23 §6IFRIC 23 §7IFRIC 23IFRIC 23 §9IFRIC 23 §10IFRIC 23 §11IFRIC 23 §13IFRIC 23 §14IFRIC 23 §A2IFRIC 23 §A3

  • Unit of account

    JudgmentRequired

    Treatment considered separately

    Treatment considered separately / Treatment considered together with others

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

    DISTINCT_ISSUE_EXAMINED_SEPARATELY

  • Probability of acceptance

    JudgmentRequired

    Acceptance not probable: effect of the uncertainty reflected

    Acceptance probable: treatment filed retained / Acceptance not probable: effect of the uncertainty reflected

    Professional judgement based on the opinions and case law of the case; the examination is assumed to be full, ignoring detection risk (IFRIC 23 para. 8).

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

    ADJUSTMENT_IN_80_PERCENT_OF_SCENARIOS

  • Measurement method

    JudgmentRequired

    Expected value

    Most likely amount / Expected value

    Professional judgement: the method that better predicts the resolution (IFRIC 23 para. 11); this model never imposes it and the choice depends on the shape of the outcomes of the case.

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

    OUTCOMES_DISPERSED_OVER_WIDE_RANGE

  • Effect of the uncertainty retained at the reporting date (0 if acceptance is probable)

    Number

    370,000

    Carry forward the result of the method retained; 0 if acceptance is probable (IFRIC 23 para. 10).

  • Increase in tax recognised in the period (effect retained − amount already recognised)

    Number

    370,000

    Input convention: effect retained − amount already recognised, verified by the sum check. A decrease (favourable new information) is entered as the release of the period, as a change in estimate (IFRIC 23 para. 14).

  • Release of tax recognised in the period (amount already recognised − effect retained)

    Number

9

Conclusion

Conclusion
  • Register of the uncertain tax position, amount retained and points submitted to the reviewer

    ConclusionRequired

10

Financial statement impact

FS impact
  • Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

    TableRequired

11

Items passed on to the note

Disclosure

IAS 12 §88IFRIC 23 §A4IFRIC 23 §A5

  • Information prepared

    ChecklistRequired

    • Tax-related contingent liabilities and contingent assets (unresolved disputes): disclosures under IAS 37
    • Recognition governed by IAS 12; IAS 37 limited to the disclosures
    • Judgements, assumptions and estimates used to determine taxable profit, bases, losses and rates: disclosure to be considered
    • Acceptance probable: disclosure of the potential effect as a tax contingency to be considered
  • Draft disclosure on the uncertain tax position

    TextRequired

    CURRENT_TAX_LIABILITY_JUDGEMENTS_AND_ESTIMATES_DISCLOSED

12

Normative references

References
  • Paragraphs cited in this workpaper (verification status shown from the register)

    References

13

Checks and financial statement impact

  • The unit of account is documentedPass
  • The probability of acceptance is documentedPass
  • The measurement method is documentedPass
  • The effect retained is stated (0 if acceptance is probable)Pass
  • The draft disclosure is writtenPass
  • Effect retained = amount already recognised + increase of the periodPass
  • Amount already recognised = effect retained + release of the periodNot evaluated
  • The release entry balancesNot evaluated
  • The entry balancesPass
Assets
0
Liabilities
370,000
Profit or loss
-370,000
OCI
0
Equity
-370,000