Income tax presented in the statement of profit or loss and other comprehensive income includes the current and deferred portion.
The current tax liability is calculated based on the taxable profit (tax base) for a given reporting period. The taxable profit/(loss) differs from net accounting profit/(loss) due to the exclusion of taxable income and expenses classified as tax-deductible in the following years as well as expenses and revenue which will never be subject to taxation. Tax liabilities are calculated based on tax rates applicable in a given reporting period.
The deferred tax is a tax of from events that occurred in a given period, recognized on the accrual basis in the accounting records of the period but realized in future.
The balance sheet liability method is used to calculate the deferred tax. The method is characterized with temporary differences between the carrying and tax amount of assets and liabilities.
The carrying value of assets and liabilities recognized in the accounting records is the base value, which is compared to the tax amount and tax loss deductible in future.
Differences between the carrying amount and tax value of an asset or liability may include:
- a positive amount resulting in an increase of the future taxable base upon settlement or realization of the carrying value of the asset or liability;
- a negative amount resulting in a reduction of the future taxable base upon settlement or realization of the carrying value of the asset or liability.
If the carrying amount of an asset or liability is equal to its tax amount, no temporary differences occur.
Temporary differences multiplied by appropriate tax rates produce assets for deductible and deferred tax provisions for taxable differences.
The deferred tax provision resulting from taxable temporary differences between the tax value of assets and liabilities and their carrying amount is recognized in the financial statements in its full amount.
The deferred tax asset is recognized if it is probable that the Company will generate taxable income which will allow it to deduct temporary differences or use tax losses in the future.
The Company does not recognize a deferred tax asset and liability if they result from the initial recognition of an asset or liability arising from a transaction other than a business combination and if the transaction does not have an impact on the gross financial profit/loss or the taxable profit when it is effected. Additionally, the deferred tax liability is not recognized with respect to temporary differences arising upon initial recognition of goodwill or goodwill whose amortization is not regarded as a tax-deductible expense.
No deferred tax asset or provision is created on temporary differences arising from investments in related parties that jointly meet the following two conditions:
- the Company is able to control the timing of the reversal of the temporary differences; and
- it is probable that the temporary differences will not reverse in the foreseeable future.
The deferred income tax is determined based on tax rates (and regulations) which are expected to be applicable when an asset is used and the liability settled, on the basis of the tax rates (and regulations) which were legally or actually applicable as at the end of the reporting period.
If the tax law allows changes in tax rates, the total amount of assets and liabilities is calculated in accordance with various tax rates.
If changes in tax rates occur in the period from determining the deferred tax assets or provisions to their settlement, the effects of measurement of assets and provisions are included in the reporting period in which the tax regulations have been amended.
The deferred tax asset is recognized only to the extent that it is probable that sufficient taxable income to use the deferred tax asset in part or in whole will be generated.
Deferred tax is recognized in profit or loss for a given period, except for instances when deferred tax:
- pertains to a transaction or event that is recognized directly in other comprehensive income, in which case it is also recognized in the relevant other item of other comprehensive income depending on an event it results from;
- results from business combinations, in which cases it affects the value of goodwill or the surplus of the interest in the net fair value of assets over business combination costs.
Deferred tax asset and liabilities are set off if there is a legally enforceable right to set off a current tax asset against a current tax liability when the deferred tax asset and liability relate to income taxes levied by the same taxation authority on the same taxable entity