• IFRIC 23 for Natural Resources - are you critically assessing your policy
Industry issue:

IFRIC 23 for Natural Resources – are you critically assessing your current policy?

27 November 2019

The new IFRIC 23 policy concerns all companies but, if you are an international Natural Resources company operating in territories with less sophisticated and stable tax systems (for instance an oil & gas company with assets in developing countries), you may find the new IFRIC 23 requirements particularly challenging and time consuming.

As you prepare your financial statements, you will need to critically assess your current policy regarding uncertain tax treatments to ensure the policy is in line with the new IFRIC 23.

What does IFRIC 23 seek to address?

IAS 12 - Accounting for Income Taxes does not specify how uncertainties in corporate income tax treatments should be reflected in the measurement and recognition of a company’s current and deferred tax assets and liabilities. This has led to a diversity in practice and the potential for ambiguity. IFRIC 23 is intended to address this by providing clarity on how this uncertainty should be recognised and measured.

What’s contained within IFRIC 23?

Companies will need to assess whether uncertainty exists, taking into account factors such as:

  • Ambiguity in the drafting of relevant tax laws
  • Tax practices that are generally applied by the tax authorities
  • Results of past tax examinations on related issues
  • Third party and in-house tax advice
  • Quality of documentation available to support a particular tax treatment.


There should be an assumption that the tax authority will look at the treatment and will have full knowledge of all related information when making those examinations. Where the likelihood of the tax authority accepting the treatment is not probable, there would be an uncertain tax position. This would need to be measured by determining the most likely amount (the single most likely amount in the range of possible outcomes) or the expected value (the sum of the probability weighted amounts in a range of possible outcomes).

Case study:

Australian domiciled mining company has not filed tax returns in 5 years. Is this in the scope of IFRIC 23?

  • No, this is a clear violation of tax legislation and not an uncertain tax position.

Case study:

Oil company invests in new technology and claims enhanced capital allowances although it is not clear whether enhanced relief is available on all the items included in the claim. Is this in the scope of IFRIC 23?

  • Yes, it does not matter if the current and deferred tax position nets off, these are treated as distinct elements.

Case study:

Plc makes a loan to one of its subsidiaries and charges interest at a rate of 1% per annum. The group has not completed a transfer pricing study and has no third party data or opinion to support this price. Is this in the scope of IFRIC 23?

  • Possibly. The group would need to undertake further work to assess whether it is probable that the tax authority would accept the tax treatment.

Please contact our Natural Resources experts Katherine Brown or Gareth Lynton Jones for more information on IFRIC 23 and how it may affect your existing policies or reporting requirements.