FR-2 Final Project “Abu Dhabi

Insurance Company
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IAS-12 Income Taxes

Overview
IAS 12 Income Taxes implements a so-called 'comprehensive balance sheet method' of accounting
for income taxes which recognizes both the current tax consequences of transactions and events
and the future tax consequences of the future recovery or settlement of the carrying amount of an
entity's assets and liabilities. Differences between the carrying amount and tax base of assets and
liabilities, and carried forward tax losses and credits, are recognized, with limited exceptions, as
deferred tax liabilities or deferred tax assets, with the latter also being subject to a 'probable profits'
test.

Objective of IAS 12
The objective of IAS 12 (1996) is to prescribe the accounting treatment for income taxes.
In meeting this objective, IAS 12 notes the following:
 It is inherent in the recognition of an asset or liability that that asset or liability will be recovered or
settled, and this recovery or settlement may give rise to future tax consequences which should
be recognized at the same time as the asset or liability.
 An entity should account for the tax consequences of transactions and other events in the same
way it accounts for the transactions or other events themselves.

Recognition of deferred tax liabilities

The general principle in IAS 12 is that a deferred tax liability is recognized for all taxable temporary
differences. There are three exceptions to the requirement to recognize a deferred tax liability, as
follows:
 liabilities arising from initial recognition of goodwill [IAS 12.15(a)]
 liabilities arising from the initial recognition of an asset/liability other than in a business
combination which, at the time of the transaction, does not affect either the accounting or the
taxable profit and at the time of the transaction, does not give rise to equal taxable and deductible
temporary differences. [IAS 12.15(b)]
 liabilities arising from temporary differences associated with investments in subsidiaries,
branches, and associates, and interests in joint arrangements, but only to the extent that the entity
is able to control the timing of the reversal of the differences and it is probable that the reversal
will not occur in the foreseeable future. [IAS 12.39]

Recognition of deferred tax assets

A deferred tax asset is recognized for deductible temporary differences, unused tax losses and
unused tax credits to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be utilized, unless the deferred tax asset arises from:
[IAS 12.24]

the initial recognition of an asset or liability other than in a business combination which, at the time of
the transaction, does not affect accounting profit or taxable profit.

Measurement of deferred tax

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realized or the liability is settled, based on tax rates/laws that have been
enacted or substantively enacted by the end of the reporting period. [IAS 12.47] The measurement
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reflects the entity's expectations, at the end of the reporting period, as to the way the carrying
amount of its assets and liabilities will be recovered or settled. [IAS 12.51]

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Presentation
Current tax assets and current tax liabilities can only be offset in the statement of financial position if
the entity has the legal right and the intention to settle on a net basis. [IAS 12.71]
Deferred tax assets and deferred tax liabilities can only be offset in the statement of financial position
if the entity has the legal right to settle current tax amounts on a net basis and the deferred tax
amounts are levied by the same taxing authority on the same entity or different entities that intend to
realize the asset and settle the liability at the same time. [IAS 12.74]

The amount of tax expense (or income) related to profit or loss is required to be presented in the
statement(s) of profit or loss and other comprehensive income. [IAS 12.77]

The tax effects of items included in other comprehensive income can either be shown net for each
item, or the items can be shown before tax effects with an aggregate amount of income tax for groups
of items (allocated between items that will and will not be reclassified to profit or loss in subsequent
periods). [IAS 1.91]

Disclosure
IAS 12.80 requires the following disclosures:

 major components of tax expense (tax income) [IAS 12.79] Examples include:
 current tax expense (income)
 any adjustments of taxes of prior periods
 amount of deferred tax expense (income) relating to the origination and reversal of
temporary differences
 amount of deferred tax expense (income) relating to changes in tax rates or the
imposition of new taxes
 amount of the benefit arising from a previously unrecognized tax loss, tax credit or
temporary difference of a prior period
 write down, or reversal of a previous write down, of a deferred tax asset.
 amount of tax expense (income) relating to changes in accounting policies and
corrections of errors.

AS 12.81 requires the following disclosures:

 aggregate current and deferred tax relating to items recognized directly in equity
 tax relating to each component of other comprehensive income.
 explanation of the relationship between tax expense (income) and the tax that would be expected
by applying the current tax rate to accounting profit or loss (this can be presented as a
reconciliation of amounts of tax or a reconciliation of the rate of tax)
 changes in tax rates
 amounts and other details of deductible temporary differences, unused tax losses, and unused
tax credits
 temporary differences associated with investments in subsidiaries, branches and associates,
and interests in joint arrangements.
 for each type of temporary difference and unused tax loss and credit, the amount of deferred
tax assets or liabilities recognized in the statement of financial position and the amount of deferred
tax income or expense recognized in profit or loss.
 tax relating to discontinued operations.
 tax consequences of dividends declared after the end of the reporting period.
 information about the impacts of business combinations on an acquirer's deferred tax assets
 recognition of deferred tax assets of an acquiree after the acquisition date.

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IAS-12 In Relation to Insurance Company

 From Notes to Financial Statements

A rate of 9% will apply to taxable income exceeding a particular threshold to be prescribed by way of a
Cabinet Decision (expected to be AED 375,000 based on information released by the Ministry of Finance),
a rate of 0% will apply to taxable income not exceeding this threshold. In addition, there are several
other decisions that are yet to be finalized by way of a Cabinet Decision that are significant in order for
entities to determine their tax status and taxable income. Therefore, pending such important decisions,
the Group has considered that the Law, as it currently stands, is not substantively enacted as at 31
December 2022 from the perspective of IAS 12 – Income Taxes. The Group shall continue to monitor the
timing of the issuance of these critical Cabinet Decisions to determine their tax status and the application
of IAS 12 – Income Taxes.

 The Group is currently in the process of assessing the possible impact on the consolidated financial
statements, both from current and deferred tax perspective, once the Law becomes substantively
enacted.

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Amendments in IAS-12

Background
In March 2022, the OECD released technical guidance on its 15% global minimum tax agreed as the
second ‘pillar’ of a project to address the tax challenges arising from digitalization of the economy.
This guidance elaborates on the application and operation of the Global Anti-Base Erosion (Globe)
Rules agreed and released in December 2021 which lay out a coordinated system to ensure that
multinational enterprises with revenues above €750 million pay tax of at least 15% on the income
arising in each of the jurisdictions in which they operate.
All of these and further considerations would entail most complicated calculations of deferred tax
in a situation that is highly volatile since jurisdictions implement the OECD rules at different speed
and different points of time. Due to the many unknown variables involved, the IASB has decided to
develop a mandatory exemption until the global tax system has settled and reestablished itself and
the IASB can thoroughly assess the situation and provide a reliable solution.

Changes
The amendments in International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12) are:
 An exception to the requirements in IAS 12 that an entity does not recognize and does not
disclose information about deferred tax assets and liabilities related to the OECD pillar two
income taxes. An entity has to disclose that it has applied the exception.
 A disclosure requirement that an entity has to disclose separately its current tax expense
(income) related to pillar two income taxes.
 A disclosure requirement that state that in periods in which pillar two legislation is enacted or
substantively enacted, but not yet in effect, an entity discloses known or reasonably estimable
information that helps users of financial statements understand the entity’s exposure to pillar two
income taxes arising from that legislation.
 The requirement that an entity applies the exception and the requirement to disclose that it
has applied the exception immediately upon issuance of the amendments and retrospectively
in accordance with IAS 8. The remaining disclosure requirements are required for annual
reporting periods beginning on or after 1 January 2023.

The IASB will continue to monitor developments related to the implementation of the pillar two model
rules. It plans to undertake further work to determine whether to remove the temporary exception — or
to make it permanent — after there is sufficient clarity about how jurisdictions implemented the rules
and the related effects on entities.

The IASB has also decided that the pillar two model rules (and the amendments to IAS 12) are
relevant to entities applying the IFRS for SMEs. The IASB has added to its work plan a narrow-scope
standard- setting project to amend Section 29 Income Tax of the IFRS for SMEs. An exposure draft
is expected in June 2023.

Dissenting opinion
The final amendments contain a dissenting opinion as one Board member is concerned that these
amendments will result in an entity disclosing less useful information to help users of financial
statements assess the entity’s future cash flows.

Effect of Amendments
Standards/ Interpretations amended: IFRS 1, IAS 12.

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Amendments to IAS 12 – Deferred Tax related to Assets and

Liabilities arising from a Single Transaction
1 January 2023

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Amendments In IAS-12 In Relation to Abu Dhabi Insurance Company

 Profit and Loss Statement

 Deferred tax liability

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