IFRS convergence: CBDT to start talks with CA institute

International Financial Reporting Standards (IFRS) is certainly not off the radar of the taxman, even as the proposed Direct Taxes Code makes no mention of it, according to a top Finance Ministry official. The Central Board of Direct Taxes (CBDT) plans to intensify discussions with the ICAI to examine the direct tax issues arising out of the proposed convergence of the Indian Generally Accepted Accounting Principles (GAAP) with the IFRS. “We have not addressed the issue of IFRS so far. But we intend to do that and talks will begin in right earnest in this regard with the Institute of Chartered Accountants of India (ICAI),” Mr S. S. N. Moorthy, Chairman of the Central Board of Direct Taxes (CBDT), told Business Line here. The convergence with IFRS is expected to happen in three phases beginning April 1, 2011. It is expected to give rise to significant tax issues, in addition to accounting and other business issues. With only a year to go before the first phase kicks-in, there are big doubts as to whether the taxman would move away from Indian GAAP (Generally Accepted Accounting Principles) to IFRS for taxation purposes. The draft Direct Taxes Code, in the present form, is very averse to IFRS and does not recognise fair value measurements or the concept of present values for taxation purposes. “I think it will be business as usual for the taxman. It is going to be difficult for him to shift in such short notice. I do not expect the taxman to move away from Indian GAAP until IFRS is the only GAAP in the country,” Mr N. Venkatram, National Leader, IFRS, Deloitte India, told Business Line. He also maintained that most Indian companies moving to the IFRS platform are unlikely to get any tax benefits out of this convergence in accounting standards. This is because the taxman is unlikely to fully adopt IFRS for taxation purposes. It could however benefit Indian companies with international presence or even multinationals here as they would be able to support their transfer pricing claims in a better manner through the common IFRS platform now available in many countries, Mr Venkatram noted. Currently, the Indian tax authorities largely go by the Indian GAAP. Another important issue is that IFRS based financial statements are consolidated financial statements and there is concept of group tax. But in India, there is no concept of group tax and the Indian Income Tax Department looks at each entity separately, he pointed out. So when the first phase of IFRS convergence kicks in from April 1, 2011, subsidiaries of Indian companies that prepare accounts through IFRS may have to continue with their financial statements under Indian GAAP. Meanwhile, ICAI Vice-President, Mr G. Ramaswamy, said that the CA institute had recently set up a joint study group comprising CBDT and income tax department officials and that the discussions are expected to intensify in coming days. – www.thehindubusinessline.com