Business income tax: International Financial Reporting Standards (IFRS)
International Financial Reporting Standards
Guidance check list for early adopters
1. Introduction
Inland Revenue ("IR") has published its International Financial Reporting Standard ("IFRS") compliance approach in the December 2006 edition of Corporates Contact. In that article it is stated that IR's compliance focus over the next year will be targeted towards IFRS early adopters. These taxpayers are due to file their 2006 income tax returns by 31 March 2007. In particular, our approach will entail both monitoring information we have and making enquiries direct with taxpayers. In some cases more detailed risk reviews or ultimately audits may result.
Whilst IFRS has a reasonably wide application, our focus in the first year will predominantly be the largest 200-300 taxpayer groups. We expect that at least 40% of this group will be first year (or early) adopters.
2.Tax return schedules and supporting work-papers
Taxpayers have alternatives as to how they file their income tax returns. Whilst there is a trend to e-filing and web filing, many large taxpayers still file paper-based returns, generally including both a set of financial statements and a statement of tax adjustments. We are not requiring taxpayers to file any extra income tax return schedules.
However, early adopters who file paper based returns may wish to consider filing extra reconciliation schedules for the sake of clarification and saving time in any risk review process. To assist, we set out below the work-papers that we expect taxpayers to have on hand.
3. IFRS tax schedules and work-papers that IR expects taxpayers will have on hand for review.
For the year of IFRS adoption we set out in the table below IR’s expectations of what supporting material, work-papers and schedules we expect taxpayers to have.
| Schedule/Work paper | What work papers should be available | |
|---|---|---|
| 1. | Financial statements | Full set including notes |
| 2. | Tax adjustment schedule & calculations | All IFRS related adjustments should be separately identified & work-papers available |
| 3. | Detail of IFRS adjustments to the Financial Statements | That transitional year adjustment work-papers be available for:
|
| 4. | NZ IAS 39 financial instruments | These adjustments can be very complex and large. IR expect that taxpayers can provide full explanations & work-papers for these adjustments |
| 5. | Thin capitalisation calculations (where applicable). Limited to groups with a turnover in excess of $100m | IR is going to ask for a sample of calculations and supporting work- papers for the year of adoption & the immediately preceding year. |
The above checklist is not exhaustive and we would expect that all significant taxpayer specific issues will have detailed work-papers about the impact of the adoption of IFRS. In particular, IR is expecting thin capitalisation ratios may change.
We are therefore taking this opportunity to request thin capitalisation calculations and work papers for a number of large taxpayers in the adoption year.
4. Future public statements
Once we have reviewed the first year adopters we expect to provide an update of our compliance approach in late 2007.
If you have any feedback in respect of this article you can contact our Risk and Intelligence team directly
Date published: 20 Dec 2006
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