IFRIC 23 ‘Uncertainty over income tax treatments’ adopted, adjustment to provisions and change in policy

Rio Tinto plc – Half year report – 30 June 2019

Industry: mining

Changes in accounting policies (extract 1)
This note explains the impact of the adoption of IFRS 16 ‘Leases’ and IFRIC 23 ‘Uncertainty over Income Tax Treatments’ on the Group’s financial statements and also discloses the new accounting policies applied from 1 January 2019, where these differ from those applied in prior periods. Prior period accounting policies are disclosed in note 1 to the 2018 Annual Report. The adoption of other minor changes to IFRS applicable to 2019 did not have a significant impact on the Group’s financial statements.

The impact on Equity attributable to owners of Rio Tinto as at 1 January 2019 from the adoption of IFRS 16 and IFRIC 23 is as follows:


Changes in accounting policies (extract 2)
IFRIC 23 ‘Uncertainty over Income Tax Treatments’ – Accounting policy applied from 1 January 2019
IFRIC 23 changed the method of calculating provisions for uncertain tax positions. The Group previously recognised provisions based on the most likely amount of the liability, if any, for each separate uncertain tax position. The interpretation requires a probability weighted average approach to be taken in situations where there is a wide range of possible outcomes. For tax issues with a binary outcome, the most likely amount method remains in use.

The Group has implemented the interpretation retrospectively, with the cumulative impact of application recognised at 1 January, 2019 without restatement of comparatives. The effect of this was an increase to provision for uncertain tax positions of US$44 million.

Upon implementation of IFRIC 23, the Group changed its accounting policy for current tax (refer to note 1(m) to the 2018 Annual Report) to reflect adoption of the probability weighted approach:
• Current tax is the tax expected to be payable on the taxable income for the year calculated using rates that have been enacted or substantively enacted at the balance sheet date. It includes adjustments for tax expected to be payable or recoverable in respect of previous periods. Where the amount of tax payable or recoverable is uncertain, Rio Tinto establishes provisions based on either: the Group’s judgment of the most likely amount of the liability or recovery; or, when there is a wide range of possible outcomes, a probability weighted average approach.

Implementation of the interpretation did not result in any changes to the Group’s accounting policy for deferred tax.