IAS 12 and FAS 109 pertain to income tax accounting

According to IAS 12 paragraph 15 (a), a deferred tax liability should not be recognized for the initial recognition of goodwill. The standard allows that the difference between book goodwill and tax goodwill is a taxable temporary difference. However, the standard does not allow recognizing a deferred tax liability, since this would create an additional taxable temporary difference since the deferred tax liability recognized increases the book goodwill while any tax goodwill remains the same. Although a deferred tax liability could be calculated through an iterative calculation, the IASB believes that this does not result in useful information.

IAS 12 requires recognizing deferred tax liabilities for all taxable temporary differences. The comprehensive approach is described in paragraph IAS 12.15, which indicates that, as a general rule, deferred tax liabilities should be recognized for all taxable temporary differences. The standard’s comprehensive nature therefore requires entities to recognize deferred tax liabilities for all taxable temporary differences regardless of whether these are expected to result in future tax cash outflows or inflows. IAS 12.16 provides the justification, by explaining that because any taxable temporary difference on assets will ultimately reverse and create taxable profit when an entity recovers the carrying amount, the standard automatically assumes that there is an economic outflow. Some deferred tax balances are, owing to the almost permanent nature of their underlying temporary differences, not expected to reverse any time in the near future. As a result their association with future tax outflow is at the least uncertain.