Standards issued but not yet effective, IAS 12 amendment to introduce an exception to the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences.

Rio Tinto plc – annual report – 31 December 2021

Industry: mining

Standards issued, but not yet effective (extract)

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 “Income Taxes”, mandatory in 2023 and not yet endorsed by the UK)

Narrow-scope amendments to IAS 12 introduce an exception to the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences. The most significant impact from implementing these amendments is expected to be from temporary differences related to the Group’s provisions for close-down, restoration, environmental and lease obligations and corresponding capitalised closure costs and right-of-use assets.

Our existing accounting policy states that “where the recognition of an asset and liability from a single transaction gives rise to equal and offsetting temporary differences, Rio Tinto applies the Initial Recognition Exemption allowed by IAS 12, and consequently recognises neither a deferred tax asset nor a deferred tax liability in respect of these temporary differences”.

Under the amendment, deferred tax assets and liabilities will be required to be recognised in respect of such temporary differences. Upon transition in 2023, the Group anticipates material adjustments (prior to required offsetting within the same tax jurisdiction) as at 1 January 2021 to deferred tax assets and deferred tax liabilities with the net difference recorded in reserves. Work is ongoing to quantify the impact, including appropriate offsets against existing deferred tax liabilities or assets in various jurisdictions. There will be no impact on tax cash flows or balance sheet tax recoverable or payable as a result of implementing these amendments and the unwind of the newly recognised deferred tax is not expected to materially impact annual profits and losses.