Faith Ngwenya Technical and Standards Executive fngwenya@saipa.co.za

italiansaucySoftware and s/w Development

Dec 13, 2013 (3 years and 6 months ago)

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Faith Ngwenya

Technical and Standards Executive

fngwenya@saipa.co.za

The Tax Implications of Implementing IFRS


Harmonisation to International
Financial Reporting standards 8
years on


General Tax implications in Africa


PWC study




Income Tax
vs

IFRS


Income Tax Acts tend to be jurisdiction specific
whilst the reporting frameworks is based on
International Financial Reporting Standards



Recognition and measurement requirements of
IFRS are a major cause of the disparity between
Accounting income and Taxable income


Quasi
-
dependent system of the profit derived
using IFRS principles with the Tax related
adjustments lead to the dreaded topic of
Deferred Tax


SMEs find compliance with IFRS and to a certain
extent IFRS for SME’s a challenge due to the Tax
implications


Areas causing differences in IFRS and Tax





Income tax definitions
vs

IFRS recognition and

measurement



IFRS assumptions
vs

Income tax

pronouncements



Cash basis
vs

accruals basis


Recognition Issues such as whether the imputed
interest on credit sales would be considered as
sales or interest income? Whether tax withholding
needs to be done on imputed interest?


Classification Issues


Income Tax
vs

IFRS


Measurement Issues in terms of whether
notional gains and losses accounted under
IFRS would be considered for tax treatment?


The point of recognition as to whether the
services contract would be taxed only upon
completion or at the point of accrual?


Indirect tax levies impact on account of IFRS
characterisation

/ point of recognition?


Income Tax and IFRS


Transfer Pricing impact on how would the
comparables be selected for Transfer Pricing
analysis


whether IFRS accounts can be
comparable


The fair value accounting for non
-
depreciable
assets



COUNTRIES THAT HAVE ADOPTED IFRS

IN AFRICA

Algeria

Botswana

Ghana

Kenya

Lybia

Malawi

Mauritius

Morrocco

Mozambique

Namibia

Nigeria

South Africa

Swaziland

Tanzania

Uganda

Zambia

Zimbabwe


Areas that were compared in the countries that
have adopted IFRS


Is IFRS required or permitted for listed companies?


Which Version of IFRS


Are subsidiaries of foreign companies or foreign
companies listed on local exchanges subject to different
rules?


Is IFRS or IFRS for SMEs required, permitted or prohibited
for statutory filings?


In addition to local GAAP statutory financial statements,
are there any other regulatory financial statement
requirements that permit or require the use of IFRS?


Plans for converging


Algeria


IFRS required or permitted for listed companies?


Required for consolidated and standalone/separate
financial statements


Version of IFRS


IFRS as adopted locally. With some differences between
locally adopted IFRS and IASB IFRS


A lot of points are not treated in the Algerian system
while the IFRS deals with more complete issues within
the text.


Are subsidiaries of foreign companies or foreign
companies listed on local exchanges subject to different
rules?


No


Rules for statutory filings


Algeria continued


Is IFRS or IFRS for SMEs required, permitted or prohibited
for statutory filings?


IFRS or IFRS for SMEs is required for consolidated and
standalone/separate financial statements.


Version of IFRS


IFRS and IFRS for SMEs as adopted locally.


In addition to local GAAP statutory financial statements, are
there any other regulatory financial statement requirements
that permit or require the use of IFRS?


No


IFRS conversion plans


Plans for converging


Not applicable. IFRS and IFRS for SMEs are already adopted
from 2010.

Botswana

Version of IFRS


IFRS as published by the IASB

Is IFRS or IFRS for SMEs required, permitted or prohibited for statutory
filings?


IFRS is required for with turnover in excess of BWP 10 million and total
assets in excess of BWP 5 million. IFRS for SMEs is permitted for
companies which are not public interest entities

Version of IFRS


IFRS or IFRS for SMEs as published by the IASB


The Botswana Institute of Chartered Accountants is in the process of
developing an Accounting Framework for Small and Medium Enterprises.
This proposed compliance framework is aligned to the Botswana income
tax regime, and would be voluntarily adopted by entities below the
threshold which requires IFRS compliance.

Botswana continued

In addition to local GAAP statutory financial statements, are there any other
regulatory financial statement requirements that permit or require the use
of IFRS?


No


IFRS conversion plans

Other expected changes


The Financial Reporting Act recently established the Botswana Accounting
Oversight Board, which is tasked with reviewing the annual financial
statements of all public interest entities as defined and will also regulate
auditors of such entities.

Type of tax regime


Quasi
-
dependent: Taxable profit is principally based on the legal entity
statutory accounts, with a number of adjustments provided in the tax law.
Most “fair value accounting” adjustments under IAS 16, IAS 19, IAS 39, IAS 40,
IFRS 2, IFRS 9, etc. are reversed for income tax purposes.

Plans for IFRS converging as the basis of tax reporting


The local tax authorities have not announced any adoption or convergence
plans of tax reporting to IFRS or IFRS for SMEs.



Ghana

Version of IFRS


IFRS or IFRS for SMEs as published by the IASB

In addition to local GAAP statutory financial statements,
are there any other regulatory financial statement
requirements that permit or require the use of IFRS?


No


IFRS conversion plans

Plans for converging


All public interest entities including banks and listed
companies on the Ghana Stock Exchange were made to
comply with IFRS effective January 1, 2007.


All other entities can voluntary adopt IFRS. The plan of the
Institute of Charted Accountants of Ghana (ICAG) is for all
Public Interest Entities to adopt IFRS no later than
December 31, 2012 and all other SMEs to adopt IFRS as
well, no later than December 31, 2013.


Ghana continued

T
T
ype of tax regime


Dependent. Taxable profit is based on the legal entity
statutory accounts, with only adjustments to determine
taxable profits.

Plans for IFRS converging as the basis of tax reporting


All public interest entities including banks and listed
companies on the Ghana Stock Exchange were made to
comply with IFRS effective January 1, 2007.


It is mandatory for all insurance companies licensed in
Ghana to adopt the IFRS framework for reporting no later
than December 31, 2011.


All other entities can voluntary adopt IFRS. The plan of the
Institute of Charted Accountants of Ghana (ICAG) is for all
Public Interest Entities to adopt IFRS no later than
December 31, 2012 and all other SMEs to adopt IFRS as
well, no later than December 31, 2013.


South Africa

Version of IFRS


IFRS as published by the IASB

Are subsidiaries of foreign companies or foreign
companies listed on local exchanges subject to
different rules?


No


Rules for statutory filings

Is IFRS or IFRS for SMEs required, permitted or
prohibited for statutory filings?


IFRS and IFRS for SMEs are permitted for consolidated
and standalone/separate financial statements. IFRS for
SMEs may be applied by all companies except listed
public and state
-
owned companies.

Version of IFRS


IFRS or IFRS for SMEs as published by the IASB

South Africa

In addition to local GAAP statutory financial statements, are
there any other regulatory financial statement requirements
that permit or require the use of IFRS?


No


IFRS conversion plans

Plans for converging


Not applicable

Other expected changes


Not applicable

Type of tax regime


Quasi
-
dependent. Taxable profit is principally based on the legal
entity statutory accounts, with a number of adjustments provided
in the tax law.

Plans for IFRS converging as the basis of tax reporting


The local tax authorities have not announced any adoption or
convergence plans of tax reporting to IFRS or IFRS for SMEs.

Zambia

IFRS required or permitted for listed companies?


Required for consolidated and standalone/separate financial
statements

Version of IFRS


IFRS as published by the IASB

Are subsidiaries of foreign companies or foreign companies
listed on local exchanges subject to different rules?


No


Rules for statutory filings

Is IFRS or IFRS for SMEs required, permitted or prohibited for
statutory filings?


IFRS is required for consolidated and standalone/separate
financial statements. IFRS for SMEs is in the process of
implementation and a country specific version is being
developed.

Version of IFRS


IFRS as published by the IASB


Zambia continued

In addition to local GAAP statutory financial statements, are
there any other regulatory financial statement requirements
that permit or require the use of IFRS?


No


IFRS conversion plans

Plans for converging


Adoption of IFRS for SMEs is currently being discussed.

Type of tax regime


Quasi
-
dependent. Taxable profit is principally based on the legal
entity statutory accounts, with a number of adjustments provided
in the tax law.

Plans for IFRS converging as the basis of tax reporting


Not applicable. IFRS is already required as the basis for tax
reporting.


Zimbabwe

Version of IFRS


IFRS automatically apply when issued by the IASB, and the effective
dates are the same.

Are subsidiaries of foreign companies or foreign companies listed
on local exchanges subject to different rules?


No


Rules for statutory filings

Is IFRS or IFRS for SMEs required, permitted or prohibited for
statutory filings?


IFRS or IFRS for SMEs is required for consolidated and
standalone/separate financial statements. IFRS for SMEs is
applicable for entities that meet the criteria for SMEs.

Version of IFRS


IFRS or IFRS for SMEs as published by the IASB (See above)


Zimbabwe

In addition to local GAAP statutory financial statements, are
there any other regulatory financial statement requirements
that permit or require the use of IFRS?


No


IFRS conversion plans

Plans for converging


Not applicable. IFRS for SMEs application is allowed effective
from January 1, 2011.

Type of tax regime


Quasi
-
dependent. Taxable profit is principally based on the legal
entity statutory accounts, with a number of adjustments provided
in the tax law.

Plans for IFRS converging as the basis of tax reporting


The local tax authorities have not announced any adoption or
convergence plans of tax reporting to IFRS or IFRS for SMEs


Countries that have not adopted in Africa



Angola


Cameroon


Chad


Cote D
Ivoire


Democratic Republic of Congo


Egypt


Equatorial Guinea


Gabon


Guinea Conakry


Madagascar


Republic of Congo


Senegal


Tunisia




Angola

Plans for converging


Financial reporting and accounting requirements are set by
law. There are no independent accounting, auditing or
standard setting bodies in Angola. The preamble to the
accounting law recognizes that convergence with IAS is a long
term objective, but no timetable or current actions in that
regard at present.

Tax information

Type of tax regime


Quasi
-
dependent: Taxable profit is principally based on the
legal entity statutory accounts, with a number of adjustments
provided in the tax law.

Plans for IFRS converging as the basis of tax reporting


The local tax authorities have not announced any adoption or
convergence plans of tax reporting to IFRS or IFRS for SMEs.

Conclusion



IFRS adoption has grown significantly in
the last five years




IFRS for SMEs is also being seen as the
alternative for Small and Medium sized
entities; however its adoption is somewhat
slower than full IFRS


There is generally little or no convergence
between countries tax systems and IFRS

Thank you