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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.
US GAAP
IFRS
Taxes based on a gross amount are not accounted for as income taxes and should be reported as pretax items.
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 as an income-based tax (i.e., in the income tax line), 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 pretax 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 pretax item.
  • Deferred taxes should be recognized and measured according to the classification chosen.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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