The timing of the recognition of a liability for secondary tax on companies in accordance with international financial reporting standards

Abstract

United States Generally Accepted Accounting Practice (“US GAAP”) generally requires taxes to be measured at the rate applicable to distributed profits, while International Financial Reporting Standards (“IFRS”) requires the undistributed rate to be used. This current conflict between US GAAP and IFRS has particular relevance in South Africa, which has a dual tax system as a result of Secondary Tax on Companies (“STC”) being levied when a company distributes its profits. Currently, under US GAAP, South African companies would be required to raise a liability for the tax that would become payable on the future distribution of profits, while under IFRS, this is only recognised when the profits are distributed.