Loss in other comprehensive income and gain in profit or loss offset for tax purposes
During the year ended 31 December 2013, an entity that pays tax at 35% makes a taxable profit of €50,000 comprising:
- €80,000 trading profit less finance costs accounted for in profit or loss; and
- €30,000 foreign exchange losses accounted for in other comprehensive income (‘OCI’).
Should the total tax liability of €17,500 (35% of €50,000) be presented as either:
(a) a charge of €17,500 in profit or loss; or
(b) a charge of €28,000 (35% of €80,000) in profit or loss and a credit of €10,500 (35% of €30,000) in OCI?
In our view, (b) is the appropriate treatment, since the amount accounted for in OCI represents the difference between the tax that would have been paid absent the exchange loss accounted for in OCI and the amount actually payable. This indicates that this is the amount that, in the words of paragraph 61A of IAS 12, ‘relates to’ items that are recognised outside profit or loss.