03 C The Income Statement-Current&deferred Taxes
03 C The Income Statement-Current&deferred Taxes
03 C The Income Statement-Current&deferred Taxes
Purpose: This standard deals with current tax and deferred tax.
Key points:
-Current tax is calculated from the statutory income adjusted for temporary and permanent differences,
to which the national tax rate is applied.
-Deferred tax is either calculated from temporary adjustments of restated income and statutory income,
or from taxable income (in the case of tax losses, tax credit, and carry-back).
-The deferred tax base is the temporary difference between the restated balance sheet carrying amount
and the balance sheet tax amount.
-Deferred tax is recognised either in income or in equity.
-The tax proof explains the differences between the theoretical tax expense and the actual tax expense.
-When a tax adjustment is made, a provision must be recognised in the statutory accounts on receipt of
the reassessment notice. In the consolidated accounts, this provision is cancelled and replaced by a
deferred tax expense.
-The applicable standard is IAS 12.
-The SUIG headings used are: RI1000 (Statutory taxes), RI2000 (Deferred taxes), RI3000 (Tax adjustment)
Permanent differences: these are expenses or income recorded in accounting for which
deductibility or taxation is irreversibly disallowed in whole or in part by the tax authorities: such
is the case of fines and penalties, of certain excessive expenses, of current tax and of some
dividends or profits earned in non-taxable free zones.
Temporary differences: these are expenses or income recorded in accounting for which
deductibility or taxation is disallowed by the tax authorities for the financial year in which they
are recognised, and the reversibility of which will result in a future tax saving or expense:
differences in depreciation expenses, provision expenses, potential foreign exchange differences
arising from the revaluation of foreign currency receivables and payables when the tax rule differs
from the accounting rule, are examples of temporary differences.
A future tax saving or future tax expense is called a deferred tax asset or a deferred tax liability.
Miscellaneous expenses for which deductibility or taxation (for capital gains on disposal of assets)
is spread out
Example 1: a company depreciates its lorries on a straight-line basis over 8 years under the accounting rules.
The tax rule allows depreciation over 5 years. The tax rate is 30%.
Example 2: The accounting provision for doubtful receivables is not tax deductible
not charged to the current tax in the year in which they originate. In the year in which they are
used they are transferred to current tax.
Theoretical tax expense = (Group income before tax + permanent differences) x tax rate + non-base tax.
Theoretical tax expense = current tax + deferred tax + non-base tax
SNET (Part I): Passage of the restated net worth to statutory net worth
SNET (Part III): Components of the change in deferred tax on the balance sheet
2 Accounting entries