IFRIC 21 - Levies

The IFRS Interpretations Committee ("the Committee") received a submission asking whether IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment could be applied by analogy to cases where authorities charge levies to entities that participate in a market at a specific date or in a specific period. The main concern relates to when a liability to pay a levy should be recognised by an entity.

On 31 May 2012 a Draft Interpretation was published, with a comment period until 5 September 2012.

This Draft Interpretation applies to levies with specified characteristics. It does not apply to certain payments such as fines or to levies that are due only if a minimum revenue threshold is achieved.

The Draft Interpretation clarifies that the obligating event that gives rise to a liability is the activity that triggers the payment of the levy as identified by the legislation. In addition it is noted that:

• an entity does not have a constructive obligation to pay a levy that will arise from operating in a future period as a result of being economically compelled to continue operating in that future period;

• the going concern principle does not imply that an entity has a present obligation to continue operating in the future and therefore does not lead to the recognition of a liability at a reporting date for levies that will arise from operating in a future period.

It also clarifies that the liability to pay a levy is recognised progressively if the obligation event occurs over a period of time, and that the same recognition principles shall be applied in the annual and interim financial statements.

In September 2012, EFRAG approved a final comment letter in which they asked the IFRS Interpretations Committee to address the concerns about the scope of the Interpretation; and encourages it to assist the IASB in addressing the accounting for payments to public authorities in a comprehensive way by taking into account the specific characteristics of such payments and the current requirements in IAS 12. The outcome should assist the decision on how to amend existing IFRS in order to provide more useful information to users in annual and interim financial reports.

In September 2012 EFRAG published also its feedback statement from comment letters received on 'Levies Charged by Public Authorities on Entities that Operate in a Specific Market'. This feedback statement describes the main comments received and how those comments were considered by EFRAG during its technical discussions.

In May 2013 the IASB issued IFRIC Interpretation 21: Levies, an Interpretation on the accounting for levies imposed by governments.

In July EFRAG issued an Invitation to Comment relating to the endorsement for use in the EU of the IFRIC Interpretation 21 Levies. It was consulting both on its assessment of this Interpretation against the technical criteria for the endorsement in the EU and on its initial assessment of the costs and benefits that would arise from their implementation and application in the EU. EFRAG's initial assessment was that IFRIC Interpretation 21 Levies satisfied the technical criteria for EU endorsement and EFRAG should therefore recommend its endorsement. Comments were requested by 2 September 2013.

On 12 September 2013 EFRAG issued its Endorsement Advice and Effects Study Report relating to the Interpretation for use in the European Union and European Economic Area. EFRAG supports the adoption of IFRIC Interpretation 21 Levies and recommends its endorsement.

EFRAG's recommendation is explained in the letter to the European Commission, and the accompanying Basis for Conclusions and the Effects Study Report on the costs and benefits of implementing the Interpretation.