Brexit and IFRS Tax Accounting


A little over nine months after British voters chose to withdraw from the EU, Britain took a decisive, and likely irreversible, step on Wednesday 29 March 2017 by giving formal notice of its intention to leave the EU. This notice will trigger the process of negotiating the UK’s exit, which is likely to last at least two years.

There are various tax reliefs and exemptions that apply to transactions between UK entities and entities in other EU member states (including Belgium), under existing laws, that might cease to apply when the UK’s exit finally occurs. The tax legislation, if any, that will replace those reliefs and exemptions is unknown at this stage.

But what does the Brexit mean from an IFRS income tax perspective? Should the formal notice on 29 March 2017 be considered as an enactment or substantive enactment in the framework of IAS 12 on Income Taxes, paragraphs 46 and 47?

Unlike a (substantive) enactment as envisaged by IAS 12, the formal notice of withdrawal on 29 March is the commencement and not the culmination of a legal process. The effects of the withdrawal on tax legislation will depend on the ‘withdrawal agreement’ (if any), which might contain tax reliefs similar to or different from those currently available. This is, in itself, not a (substantive) enactment but a tax uncertainty.

Entities should (re-)assess the potential tax consequences of the withdrawal agreement at each reporting date and thereby consider recognition and/or disclosure. Entities with period ends before the date of notice of withdrawal should consider disclosure of the potential implications for income tax accounting in accordance with IAS 10 Events after the Reporting Period.

For more insights and to understand the implications on your company’s IFRS or US GAAP tax reporting, please do not hesitate to contact us.