Accounting treatment of taxes

Transcription

1 Accounting treatment of taxes Issues paper presented at the EPSAS WG Meeting Rome, November 2016 The better the question. The better the answer. The better the world works.

2 Contents Introduction Objectives of the Issues Paper and main issues addressed Methodology Findings regarding recognition and measurement of taxes IPSAS vs. ESA 2010 Identified approaches in practice Timing and certainty of revenue recognition Discussion matters Convergence between IPSAS and ESA Categories of taxes to be treated by future EPSAS standards and need for supplementary guidance Format of additional application guidance Page 2

3 Introduction Methodology Findings Discussion matters Page November 2016

4 Introduction Objectives of the Issues Paper Aim of the Issues Paper: To develop an analysis of the accounting treatment of taxes with a view to financial reporting requirements under the future EPSAS Main issues addressed in the paper: Main categories of taxes in Europe Approaches taken in international accounting frameworks Approaches taken in Member States accounting frameworks Problematic points/issues with regards to recognition and measurement Treatment of these problematic points/issues under IPSAS Categories of taxes to be treated by future EPSAS Need for supplementary guidance on some aspects of the treatment of taxes Consequences for a possibly convergence between EPSAS and ESA Way forward on taxes Page 4

5 Introduction Methodology Findings Discussion matters Page November 2016

6 Methodology 1. Identified the main categories of taxes in the EU using empirically data 2. Analysed difficulties when accounting for taxes under the accrual principle for a) Income Taxes b) VAT 3. Identified further difficulties and problems for the accounting of taxes under IPSAS 23 using: a) Secondary literature, including IPSASB meeting material b) Commission Staff Working Document c) 2014 PwC study d) Input from Member States during the country analysis 4. Described the current accounting guidance on taxes (IPSAS, EAR, IFRS, ESA 2010) 5. Analysed Member States national public sector accounting frameworks, i.e. France, Latvia, Lithuania, Malta and UK based on annual accounts, interviews, secondary literature Page 6

7 Introduction Methodology Findings Discussion matters Page November 2016

8 Recognition and measurement of taxes IPSAS 23 vs. ESA 2010 Recognition and measurement IPSAS 23 ESA Timing of recognizing revenue Accrual principle Taxable event plus asset recognition criteria must be met Standard recommends to use statistical models when timing difference Accrual principle Taxable event Two methods in practice: Tax assessment method Time-adjusted cash method 2. Measurement of revenue/related asset Measurement at the best estimate of the inflow of resources to government Recognition method also determines measurement: Tax assessment method Time-adjusted cash method Page 8

9 Accounting for taxes in accordance with the taxable event principle Recognition and measurement of taxes Identified approaches in practice Methods (approaches/models) Explanations Accounting frameworks Statistical model (IPSAS 23) Taxes are measured by using statistical models IPSAS 23 UK Models are based on the history of collecting the particular tax in prior periods, the timing of cash receipts from taxpayers, declarations made by taxpayers and the relationship between taxation receivable and other events in the economy Malta Tax declaration / tax assessment approach Taxes are recorded based on tax declarations received or tax assessments made [Time-adjustments are possible under those approaches to allocate tax revenues according to taxable event] ESA France Latvia Lithuania Time-adjusted cash method Taxes are recorded based on cash received from taxpayers Time-adjustments are made to allocate tax revenues according to taxable event ESA Currently used by many Member States Page 9

10 Recognition and measurement of taxes Timing (t) and certainty (c) of revenue recognition Statistical model approach tax declaration approach tax assessment approach time-adjusted cash method timing of revenue recognition t uncertainty of revenue recognition c Page 10

11 Introduction Methodology Findings Discussion matters Page 11

12 Discussion matters Convergence between IPSAS and ESA Both frameworks follow the taxable event approach However, both frameworks have different methods to fulfill the taxable event requirement Requirement Methods (approaches/ models) Recognition of tax revenue based on the taxable event ( taxable event approach ) Statistical model (IPSAS 23) Tax declaration/ tax assessment approach Time-adjusted method cash Discussion matter: To fulfil the taxable event requirement should EPSAS allow all three methods or only selected methods for tax revenue recognition? Maybe all methods but under certain conditions? Page 12

13 Discussion matters Categories of taxes to be treated by future EPSAS standards and need for supplementary guidance Analysis based on materiality showed that EPSAS should focus on income taxes and VAT Complexity and variety of taxes and tax systems in Member States EPSAS Standard Additional application guidance Discussion matter: Should EPSAS foresee additional application guidance on accounting for taxes? Page 13

14 Discussion matters Format of additional application guidance Type of guidance: Purpose of guidance: Standard (EPSAS) Principles for accounting of tax revenues by Member States Additional application guidance (either as part of the EPSAS or as a separate document) Providing interpretations and application guidance for accounting for tax revenues by preparers in Member States Point of reference: Principles on accounting for taxes in accordance with IPSAS 23 Individual tax systems of Member States Issues to be covered: Recognition principles for tax revenues (i.a. the taxable event approach, advance receipts of taxes) Specification of the recognition principles for tax revenues taking into account the individual tax systems of Member States Measurement of assets arising from taxation transactions (i.a. reliable measurement through statistical models, the tax declaration/tax assessment approach or the time-adjusted cash method, factors determining the measurement, impairment of tax receivables) Presentation and disclosures issues, like accounting treatment of differences between tax amounts determined by the different measurement methods and the amounts determined in subsequent reporting periods or treatment of expenses paid through the tax system and tax expenditures Specification of the measurement principles for tax revenues taking into account the individual tax systems of Member States (i.a. application of what measurement approach under what circumstances) Detailed application guidance on presentation and disclosure issues taking into account the individual tax systems of Member States Page 14

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