Levies charged on entities that operate in a specific market

A public authority may impose a levy on entities that operate in a specific market, such as a specific country, a specific region or a specific market in a specific country. Recently, the IFRS Interpretations Committee was asked to consider how an entity would account for the payment of levies, other than income taxes, in its financial statements; specifically, when the liability to pay a levy should be recognized. The proposed guidance clarifies that the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy as identified by the legislation. For example, if the activity that triggers the payment of the levy is the generation of revenues in the current period and the calculation of that levy is based on revenues generated in a previous period, the obligating event for that levy is the generation of revenues in the current period.

Draft Interpretation DI/2012/1, Levies Charged by Public Authorities on Entities that Operate in a Specific Market, addresses the accounting for levies that are recognized in accordance with the definition of a liability that is provided in International Accounting Standard (IAS) 37, Provisions, Contingent Liabilities and Contingent Assets. The draft Interpretation does not address the accounting for: (a) income taxes that are within the scope of IAS 12, Income Taxes; (b) levies that are due only if a minimum revenue threshold is achieved; (c) fines or other penalties imposed for breaches of the legislation; and (d) contracts between a public authority and a private entity. Levies within the scope of this draft Interpretation have the following characteristics:

• They require a transfer of resources to a public authority (or to a third party designated by a public authority) in accordance with legislation (i.e., laws and/or regulations);
• They are paid by entities that operate in a specific market as identified by the legislation (such as a specific country, a specific region or a specific market in a specific country);
• They are non-exchange transactions (i.e., transactions in which the entity paying the levy does not receive any specific asset in direct exchange for the payment of the levy);
• They are triggered when a specific activity identified by the legislation occurs (such as operating in a specific country or operating in a specific market in a specific country); and
• The calculation basis of the levy uses data for the current period or a previous reporting period, such as the gross amount of revenues, assets or liabilities.

The draft Interpretation is open for public comment until September 5, 2012.