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8.4 Taxes – initial recognition of an asset or a liability
Publication date: 31 Mar 2023
us IFRS & US GAAP guide
Certain situations that generate a deferred tax asset or liability under US GAAP may have no deferred tax accounting under IFRS.
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments to IAS 12 narrow the scope of an initial recognition exemption for deferred taxes and are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. Differences may still exist between US GAAP and IFRS after adoption of the amendments.
US GAAP | IFRS |
A temporary difference may arise on initial recognition of an asset or liability. In asset purchases that are not business combinations, a deferred tax asset or liability is recorded with the offset generally recorded against the assigned value of the asset. The amount of the deferred tax asset or liability is determined by using a simultaneous equation method. If the simultaneous equation reduces the basis of the asset to less than zero, a deferred credit is recorded. The deferred credit is amortized to income tax expense in proportion to the realization of the tax benefits that gave rise to the deferred credit.
| Prior to adoption of the May 2021 amendments, an exemption exists that deferred taxes should not be recognized on the initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit/loss at the time of the transaction.
After adoption of the May 2021 amendments, the exemption is changed such that deferred taxes should not be recognized on the initial recognition of an asset or liability in a transaction that:
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