Accounting profit vs Taxable income

income tax payable

Income tax expense = taxes payable + ΔDTL –

ΔDTA

Deferred tax assets vs Deferred tax liabilities

Permanent/Temporary difference

Effective tax rate

Tax loss carry forward

■Timing of revenue and expense recognition

in IS and tax return differ
1. Differences Between Accounting ■Certain revenues and expenses are
Profit and Taxable Income recognized in IS but never on tax return or
vice-versa.
■ Assets and/or liabilities have different
carrying amounts and tax bases.
■ Gain or loss recognition in IS differs from
the tax return
■ Tax losses from prior periods may offset
future taxable income
■ Financial statement adjustments may not
affect equally the tax and accounting return or
may be recognized in different periods
Current Tax Assets and Liabilities Differences in accounting and tax
7. Comparison of IFRS and USGAAP
Under IFRS, deferred tax assets and liabilities
are always classified as non-current.

6. Presentation and Disclosure

Deferred taxes as well as income taxes should always be
recognized on the income statement of an entity unless it pertains
to:
■ Taxes or deferred taxes charged directly to equity, or
■ A possible provision for deferred taxes relates to a business
combination
5.1 Recognition of a Valuation Allowance
5.2 Recognition of Current and Deferred Tax
Charged Directly to Equity
Under US GAAP, however, deferred tax assets
Deferred Tax Assets and Liabilities and liabilities are classified on the balance
sheet as current and noncurrent based on the
classification of the underlying asset or liability
2.1 Determining the Tax Base of an Asset
2. Determining the Base of Assets and
5. Recognition and Measurement of Liabilities 2.2 Determining the Tax Base of a Liability
Current and Deferred Tax
Reading 29: Income Tax 2.3 Changes in Income Tax Rates Floating Topic

Permanent differences are differences

between tax and financial reporting of
there is uncertainty as to the probability of
revenue (expenses) that will not be reversed
future taxable profits => only recognized to
at some future date
the extent of the available taxable temporary
differences
IFRS provides an exemption (that is, deferred tax is not provided on
the temporary difference) for the initial recognition of an asset or
generate future taxable profits before the
liability in a transaction that:
unused tax losses and/or credits expire
a) is not a business combination (e.g., joint ventures, branches and
assessing the probability that sufficient unconsolidated investments);
Determine whether the past tax losses were a 4. Unused Tax Losses and Tax Credits
taxable profit will be generated in the future and b) affects neither accounting profit nor taxable profit at the time
result of specific circumstances that are
of the transaction.
unlikely to be repeated;
4.1 Taxable Temporary Differences => Result
Discover if tax planning opportunities are in DTL US GAAP does not provide an exemption for these circumstances
available to the entity that will result in future
4.2 Deductible temporary differences = >
profits.
result in DTA

3. Temporary and Permanent

Differences Between Taxable and
Accounting Profit

4.3 Business Combinations and Deferred

Taxes

■The parent is in a position to control the

DTL: unless both of the following criterion are
satisfied
4.4 Investments in Subsidiaries, Branches,
Associates and Interests in Joint Ventures
DTA if the following criteria are
satisfied
timing of the future reversal of the temporary
difference, and
■ It is probable that the temporary difference
will not reverse in the future.
■ The temporary difference will reverse in the
future, and
■ Sufficient taxable profits exist against which
the temporary difference can be used.