ICAJ NEWS

TAX IMPLICATIONS OF IFRS….

The ICAJ Seminar on the "Tax Implications of IFRS and Compliance Issues," held on January 31 at the Jamaica Conference Centre attracted capacity crowd of over 300 participants, many of whom had major concerns about the Tax Implications of IFRS.

The seminar topics were aimed at ascertaining the views of the tax authorities on how they proposed to treat with certain of the items appearing for the first time or being presented differently in financial statements prepared under IFRS. This was in an effort to ensure that the concerns raised by members and stakeholders are effectively addressed.

Mrs. Vinnette Keene, Commissioner, Taxpayer Audit & Assessment Department (TAAD), in her presentation highlighted the views of the Department on the various IFRS requirements as follows:

• IAS 2 -Inventories
  The position of the Department is that LIFO is not acceptable, hence, the current practice continues, that is, FIFO Average cost etc.
  
  
• IAS 19 - Employee Benefits
  The position of the Department as it relates to Short-Term Employee Benefit was that amounts paid will be accepted as allowable expense, but provisions will not be allowed. Provisions should be adjusted in the Income Tax Adjusting Statement.
  
  As it relates to Profit Share and Bonus Plan under IAS 19, the TAAD advises that any cost recognised as a provision is not allowable for Income Tax purposes. Only Realised Expenses will be allowed.
  
  Regarding Post-Employment Benefits-Defined Contribution Plans, the TAAD accepts the IFRS provisions. Disclosed amounts will be recognised as an expense for the defined contribution plan.
  
  With respect to Defined Benefit Plans, the view of the TAAD is that the IFRS value amount recognised in the Balance Sheet is accepted for Tax purposes. Actuarial losses will be allowed if/when paid into the fund, while actuarial gains are taxable only when realised. The Department notes that treatment of the Defined Benefit Plan is currently directed by the IT Act Section 44 & 44A. The New Pensions Act will be the guiding influence in the future.
  
  
• IAS 21 - Effects of Changes in Foreign Exchange Rates
  Position of the TAAD is now reversed, unrealised gains and losses will now be accepted. Gains/Losses on revenue items taxed/allowed in calculating the profit/loss. Gains/Losses on Capital Assets will be allowed for Capital Allowance purposes.
  
  
• IAS 39 - Financial Instruments (Recognition & Measurement)
  Position of the TAAD was that the issue required further discussion and analysis. However, financial institutions "mark to market accounting" will be accepted (i.e. unrealised gains/losses) in a trading context and only realised gains/losses on revenue transactions would be allowed for non-financial instruments.
  
  
• IAS 40 - Investment Property
  Position of the TAAD was that the IFRS requirement is accepted, subject to applying the 'Badges of Trade' to determine whether or not the operation is trading.

Persons should note that with regards to some of the items set out above, for example, the treatment of foreign exchange gains, we are having further dialogue with the Revenue Authorities. It must also be observed that while the Standards are now termed "IFRS" the old IAS numbering continues.

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