For the first time since 2014, Income Taxes will be a focus area for SIX for 2020.
In particular, for IFRS reporters, the reconciliation from the applicable to the effective tax rate (or tax expense) will be under scrutiny, as well as the effective tax rate itself. The focus will be placed on whether the information provided is meaningful, comprehensive and appropriately explained.
For FER financial statements, scrutiny will be focused on the disclosures with regard to the applicable tax rate, the impact from variations in tax loss carry forwards and deferred income tax entitlements for unused tax loss carry forwards.
Providing a detailed disclosure of the make-up of the tax charge is deemed sensitive by many organisations. Not only could this reveal information considered commercially sensitive such as how much research tax credit you benefit from, or the impact of tax holidays, but for many, there remains a concern that disclosures of items related to the impact of tax planning, the group’s value chain and tax risk provision movements could attract the interest of the tax authorities. For these reasons, companies often provide generic descriptions of adjusting items in their tax reconciliation.
Nevertheless, this information would be useful for investors to understand the core cost of tax to the business. These are the concerns that have no doubt raised the interest of the SIX Suisse into this issue.
Companies should focus on how any additional information they provide in 2020 may be interpreted by external stakeholders to ensure that it is aligned with existing or potential future public messaging around tax management and strategy. In addition, groups using a weighted average tax rate as the applicable tax rate may need to provide additional disclosure to explain variations in that tax rate or explain an unusual weighted average tax rate.
Deferred tax asset recognition is an area requiring management’s judgement and under both IFRS and Swiss GAAP FER deferred tax assets are only recognised to the extent that it is probable that the future taxable profit will be available against which they can be utilised. Both standards require disclosures related to these judgements, which for some businesses will be particularly challenging given the uncertainty around the short and medium term economic environment as a result of the COVID-19 pandemic.
Groups should therefore ensure that they have robust procedures for the recognition and documentation of deferred tax assets. Forecasts used to support recognition should be aligned with the forecasts used for other business purposes and businesses should consider whether the forecast period used to support the recognition of deferred tax assets should be adjusted.
The Roadmap to Accounting for Income Taxes (April 2020 edition) can be downloaded without subscription from Deloitte’s Roadmap series here.
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