With Indian entities converging to IFRS in a phased manner, starting from 2011, the most important question being
asked is: Whether income-tax will be based on Indian GAAP or IFRS? Currently,
profit before tax (PBT) as per Indian GAAP is used as a starting point to
calculate taxable income and tax liability. Upon application of IFRS, whether the tax
authorities will accept IFRS PBT as a starting point to determine taxable
income?
It is likely that for many companies the PBT under Indian GAAP and
IFRS will be substantially different, and this will change the taxable income and
tax liability. This brings in a lot of uncertainty for the taxation authorities
and also to the entities that are converging to IFRS, as to how the PBT
numbers, taxable income and tax liability is likely to change due to IFRS
application. In this article, we will also discuss a few key differences that may cause
a big difference to the PBT under IFRS and Indian GAAP.
Canada is adopting IFRS in 2011. The Canadian Revenue Agency
(CRA) points out that Canada's tax and case law provides rules for virtually all
non-routine transactions. Given the
extent of the tax rules that override
accounting treatment, the CRA does not expect that taxable income will
be significantly affected by the adoption of IFRS. Based on their analysis, the
CRA says that it will accept IFRS financial statements for tax reporting
purposes. Canada's tax law does not specify that financial statements need to be
prepared following any particular accounting principles or standards to
determine profit. The Supreme Court has held that any method can be used,
as long as it is consistent with the tax law, established case law, and
well-accepted business principles. The CRA's view
is that financial statements based on IFRS are an acceptable starting
point for determining taxable income. |
