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Deloitte warns on commercial impacts of IASB’s income tax proposals

Contact:  Petros Kosmopoulos
Corporate Affairs & Communications
Mobile: 0407 00 0926
Tel: +61 (0) 3 9208 7621

Deloitte has urged companies to immediately address their tax uncertainties in light of the income tax accounting proposals issued today by the International Accounting Standards Board (IASB) as it represents an increased commercial risk in managing uncertainties that companies face in their tax affairs on a day-to-day basis.

Paul Fogarty, a Corporate Tax partner with Deloitte, said that given the complexity of Australian tax law, Australian companies will face significant challenges in complying with any new Standard resulting from the IASB’s proposals.

“Under the proposals in the Exposure Draft, Boards and management of all companies will need to consider the financial statement effect of not only their future tax positions, but also their current tax positions, to avoid potentially undesirable reporting consequences in 2011,” he said.

“The changes will require disclosure of all uncertain tax positions adopted in income years still open to review by the Australian Taxation Office (ATO) at the implementation date, which is expected to occur during 2011.

“This would generally cover income years as early as 2007 and in some cases earlier income years, where for example, transfer pricing or research and development claims are involved.”

The Exposure Draft also represents a quantum shift in how income tax uncertainties are measured. Proposed changes will require companies to provide to their auditors documented support as to the probabilities of all possible outcomes of any uncertain tax positions adopted.

The financial statement disclosure changes may also provide a ‘roadmap’ which will allow the ATO to focus their investigative activity. Deloitte expects that the current trend of the ATO focussing on financial statement disclosures is going to accelerate with these proposals.

“While there is a lead time before any new standard is introduced, these are significant commercial issues requiring consideration for all companies,” Mr Fogarty said.

Debbie Hankey, Accounting Technical partner with Deloitte, notes that the proposals also have a wider challenge.

“The new requirements in accounting for uncertain tax positions combined with a number of other significant technical changes, provides a substantial challenge for all organisations. The new requirements will need careful stakeholder management to avoid unfavourable outcomes.”

Even though the changes are at the exposure draft stage, Ms Hankey urged entities to act quickly.

“We expect a widespread impact from the proposals. Entities must come to grips with the proposals quickly and implement appropriate mitigation strategies. We expect that these proposals will not be well received and encourage companies to make their views known to the IASB and AASB.”

For further information:
Debbie Hankey
Partner, National Assurance and Advisory Technical
Mobile: 0414 911 420
Tel: +61 (02) 9322 7665

Paul Fogarty
Partner, Corporate Tax

Mobile: 0414 569 071

Tel: +61 (03) 9208 7253

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