ifrs 16 - tax accounting - kpmg...book-to-tax difference of 100 (temporary difference) ... debit....
TRANSCRIPT
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IFRS 16 business impacts
Systems & Processes― System solution― ERP integration― Future process design
Finance― Transition options― Data collection― Tax― KPIs
Investor relations― External communication― Analyst queries
Other impacts― Management reporting― Management remuneration― Training
Strategy― Lease vs buy― Lease structuring ― Sale and leasebacks
Treasury― Covenants― Credit rating― Discount rates
IFRS 16 accounting
change
Finance― Transition options― Data collection― Tax― KPIs― Impairment & Valuations― Complex accounting
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With you today
Presenters
Stefan PaantjensSenior ManagerTax accounting specialist CMAAS
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Agenda for today
Dutch tax treatment under IFRS 16
Guidance: IFRS Staff paper June 2018 & IFRS Exposure draft July 2019
IFRS 16 Tax accounting – at implementation date & subsequent accounting
Recognising deferred tax assets
IFRS 16 Tax accounting – lease modification
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Can IFRS 16 also be applied for Dutch tax purposes?
― The accounting treatment under IFRS 16 is not followed for Dutch tax purposes, as a result of which deductible and taxable temporary differences could arise between the commercial and tax books.
― These temporary differences generally result in the recognition of deferred tax assets and liabilities.
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Guidance
Preliminary view: initial recognition exemption not applicable Assess deferred tax
IFRS Staff paperJune 2018
Preliminary view: analysis per temporary difference
Recognise both deferred tax asset/deferred tax liability
IFRS Staff paperJune 2018
Proposals to amend IAS 12 Income TaxesThe initial recognition exemption is not needed if a transaction gives rise to equal amounts of deferred tax assets and liabilities.
IFRS Exposure draft July 2019
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Modified retrospective – option 1 – ROU asset = lease liability
Balance Sheet – Accounting
Debit Credit
Leased Asset (‘’right of use’’) 100
Lease Liability 100
Balance Sheet – Tax purposes
Debit Credit
Leased Asset (‘’right of use’’) 0
Lease Liability 0
Book-to-tax difference of 100 (temporary difference) for asset and liability
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Modified retrospective – option 1 – ROU asset = lease liability
Asset
Netting of deferred taxes in presentation (compulsory if conditions are met), therefore at implementation no impact is applicable. However, disclosure in the financial statements is necessary.
Balance Sheet – Accounting
Debit Credit
Leased Asset (‘’right of use’’) 100
Lease Liability 100
Balance Sheet – Tax purposes
Debit Credit
Leased Asset (‘’right of use’’) 0
Lease Liability 0
Debit Credit
Equity 25
DTL 25
Debit Credit
DTA 25
Equity 25Note: *Tax rate 25%.
Liability
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Modified retrospective – option 2 – as if IFRS 16 is always applied for right of use asset
Balance Sheet – Accounting
Debit Credit
Equity 20
Leased Asset (‘’right of use’’) 80
Lease Liability 100
Balance Sheet – Tax purposes
Debit Credit
Leased Asset (‘’right of use’’) 0
Lease Liability 0
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Modified retrospective – option 2 – as if IFRS 16 is always applied for right of use asset
Netting of deferred taxes in presentation (compulsory if conditions are met). Disclosure in the financial statements remains necessary.
Book-to-tax difference of :― 80 (taxable temporary difference)
for asset― 100 (deductible temporary
difference) for liabilityNote: *Tax rate 25%.
LiabilityDebit Credit
Equity 20
DTL 20
Debit Credit
DTA 25
Equity 25Note: *Tax rate 25%.
Net approachDebit Credit
DTA 5
Equity 5
Asset
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Subsequent accounting #1
Base Case
The right of use asset is depreciated with 20, the new carrying amount is 80 (=100-20)
Balance Sheet – AccountingDebit Credit
Income tax (P&L) 5 (=25%*20)DTL 5 (=25%*20)
Asset
Balance Sheet – AccountingDebit Credit
Leased Asset (‘’right of use’’) 100Lease Liability 100
Balance Sheet – Tax purposesDebit Credit
Leased Asset (‘’right of use’’) 0Lease Liability 0
Debit CreditEquity 25DTL 25
Debit CreditDTA 25Equity 25
Note: *Tax rate 25%.
Liability
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Subsequent accounting #2
Asset
Balance Sheet – AccountingDebit Credit
Leased Asset (‘’right of use’’) 80Lease Liability 100
Balance Sheet – Tax purposesDebit Credit
Leased Asset (‘’right of use’’) 0Lease Liability 0
Debit CreditEquity 20DTL 20
Debit CreditDTA 25Equity 25
Note: *Tax rate 25%.
Liability
The lease-liability increased due the discounting impact and passage of time whereas in the P&L an interest expense of 5 (5% of 100) is recognised, resulting in an assumed lease-liability (before payment) of 105 (=100+5)
Balance Sheet – AccountingDebit Credit
Income tax (P&L) 1,25 (=25%*5)DTA 1,25 (=25%*5)
Base Case (after depreciation Leased Asset)
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Subsequent accounting #3
Asset
Balance Sheet – AccountingDebit Credit
Leased Asset (‘’right of use’’) 80Lease Liability 105
Balance Sheet – Tax purposesDebit Credit
Leased Asset (‘’right of use’’) 0Lease Liability 0
Debit CreditEquity 20DTL 20
Debit CreditDTA 26,25Equity / PL 26,25
Note: *Tax rate 25%.
Liability
Balance Sheet – AccountingDebit Credit
Income tax (P&L) 2,5 (=25%*10)DTA 2,5 (=25%*10)
Lease payments for an amount of 10 were made and deducted from the liability. After this payment, theliability is 95 (=105-10)
Base Case (after depreciation Leased Asset and interest expense)
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Wrap up: Recognise deferred taxes
Deferred tax liabilities
Recognise in full
Deferred tax assets
Recognise to extent probable that future taxable profit will be available against which
deductible temporary differences can be used
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Recognising deferred tax assets
Future taxable profits: based on commercial forecast to be modified for tax purposes (including tax planning opportunities)
Deductible temporary differencesandunused tax losses & credits
Taxable temporary differences
Unrecognised DTA
Recognised DTAStep 2
Step 1
Mandatory, no accounting policy choice!
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Main Dutch corporate tax developments – CIT Rates
Reduction of Dutch CIT rates in steps – enacted 28 December 2018
Tax plan 2020 – Proposal (presented on Budget day; Prinsjesdag)
Tax accounting implications: 1. Deferred tax measured at enacted/substantively enacted tax rate2. Re-assessment of existing deferred taxes based on reversal schedule3. Backward tracing
Profit 2020 2021
> € 200K 25% 21,7%
Implications Dutch CIT
Profit 2018 2019 2020 2021
≤ € 200K 20% 19% 16,5% 15%
> € 200K 25% 25% 22,55% 20,5%
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Tax accounting implications lease modification
01Leases can be modified in multiple ways, which usually impacts the right-of-use asset or the lease liability and potentially results in gains/losses in the P&L
The changes in the right-of-use asset and lease liability also impact the temporary differences between the commercial base and tax base and subsequently the recognized deferred tax assets and liabilities.
02
Consequences
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Increase in scope accounted for as a separate lease
Asset
Balance Sheet – AccountingDebit Credit
Leased Asset (‘’right of use’’) 100Lease Liability 100
Balance Sheet – Tax purposesDebit Credit
Leased Asset (‘’right of use’’) 0Lease Liability 0
Debit CreditEquity 25DTL 25
Debit CreditDTA 25Equity 25
Note: *Tax rate 25%.
Liability
The entity modifies the lease by an increase of quantity in assets (increase in scope). The increase of scope grants the entity the right to an extra asset and the consideration of the lease increases by an amount equivalent to the stand-alone lease price of the asset (in this case discounted to 80). The entity accounts for
the lease modification as a separate lease. The following entries apply:
Balance Sheet – AccountingDebit Credit
Leased Asset (‘’right of use’’) 180 (= 100+80)Lease Liability 180 (=100+80)
Base Case
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Increase in scope accounted for as a separate lease
Recognition of the additional deferred tax liability related to the increased right-of-use asset, using the current Dutch statutory rate:
Balance Sheet – Accounting (additional DTL)Debit Credit
Income tax (P&L) 20 (=25% * 80)DTL 20 (=25% * 80)
Recognition of the additional deferred tax asset related to the increased lease-liability using the current Dutch statutory rate:
Balance Sheet – Accounting (additional DTA)Debit Credit
DTA 20 (=25% * 80)Income tax (P&L) 20 (=25% * 80)
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Increase in scope accounted for as a separate lease
The total deferred tax asset and liability balances are as follows:
Balance Sheet – AccountingDebit Credit
DTA 45 (=25% * 180)DTL 45 (=25% * 80)
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© 2019 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.