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Hybrid taxes are based on the higher or lower of a tax applied to (1) a net amount of income less expenses, such as taxable profit or taxable margin, (generally considered an income tax) and (2) a tax applied to a gross amount, such as revenue or capital, (generally not considered an income tax). Hybrid taxes are assessed differently under the two frameworks, which could lead to differences in presentation in the income statement and recognition and measurement of deferred taxes.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. Differences may still exist between US GAAP and IFRS after adoption of the ASU. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. For all other entities, it is effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted in any interim or annual period. If an entity chooses to early adopt, it must adopt all changes as a result of the ASU.
US GAAP
IFRS
Taxes based on a gross amount are not accounted for as income taxes and should be reported as pre-tax items.
Prior to adoption of ASU 2019-12,  if a hybrid tax is based on the greater of an income-based calculation and a non-income-based calculation, the amount of tax based on the non-income-based calculation should be accounted for outside of ASC 740 (i.e., above the line) in the period incurred. Only any incremental amount calculated under income-based tax should be accounted for as income tax expense under ASC 740.
After adoption of ASU 2019-12, if a hybrid tax is based on the greater of an income-based calculation and a non-income-based calculation, the amount of tax that is based on income should be accounted for under ASC 740 as an income-based tax, with any incremental amount accounted for as a non-income-based tax (i.e., above the line) recognized entirely in the period incurred.
Deferred taxes should be recognized and measured according to that classification.
Accounting for hybrid taxes is not specifically addressed within IFRS.
Applying the principles in IAS 12 to the accounting for hybrid taxes, entities can adopt either one of the following approaches and apply it consistently:
  • Designate the tax based on the gross amount not considered income as the minimum amount and recognize it as a pre-tax item. Any excess over that minimum amount would then be reported as income tax expense; or
  • Designate the tax based on the net amount of income less expenses as the minimum amount and recognize it as income tax expense. Any excess over that minimum would then be reported as a pre-tax item.
  • Deferred taxes should be recognized and measured according to the classification chosen.
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