Companies may need to reflect the impact of upcoming changes in tax laws in their 2023 impairment assessments.
Yes – if sufficient information about the upcoming changes to tax laws is available and management expects that the law will be finalised as drafted.
When determining value in use, in our view a company should consider the impact of upcoming changes to tax laws. Depending on the stage of the legislative process, it may be challenging for management to determine the impact of the changes before they are finalised. This means that they may be unable to reflect this in future post-tax cash flow estimates if information about specific provisions of the tax laws or their timing is insufficient or unavailable.
We believe that a company should reflect changes in the cash flows when calculating value in use if:
- sufficient information is available on the upcoming changes to tax laws that may significantly impact value in use; and
- it expects that the law will be finalised as drafted.
In our view, the CGU that triggers it.
This applies to impairment tests in the consolidated financial statements of a group in which a company that is liable for the top-up tax and a company that triggers it are included in different CGUs.
Yes – if sufficient information about the upcoming changes is available that would allow a market participant to reflect these changes in the cash flows.
When determining fair value less costs of disposal, in our view a company should consider the impact of upcoming changes to tax laws based on a market participant’s perspective – i.e. whether such changes would apply or be relevant to a market participant.
When performing this analysis, similar challenges to those discussed in Question 1 may arise if information about upcoming changes to tax laws is insufficient or unavailable. If information is available and a market participant could reflect these changes in the cash flows, then we believe that these upcoming changes should be reflected in the tax cash flows when calculating fair value less costs of disposal.
In our view, the CGU that triggers it – but only if a market participant would be subject to the top-up tax on acquiring the company that triggers it.
When determining fair value less costs of disposal in an impairment test at the group level, in our view a company should consider the market participant’s perspective on whether and where to reflect expected future top-up tax payments. This means considering:
- whether Pillar Two tax laws apply to the market participant – i.e. whether it would be subject to the top-up tax if it acquired the company that triggers it; and
- how a market participant would take into account the expected future top-up tax payments in pricing the CGU that either triggers the top-up tax or is liable to pay it.
If a market participant would be subject to the top-up tax on acquiring the company that triggers it, then we believe that the expected future top-up tax payments should be reflected in the CGU that triggers the top-up tax.
© 2024 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.