Chapter 11: Income taxes

Income taxes arising from investments in associates or joint ventures are accounted for in accordance with IAS 12. A temporary difference might arise between the investment’s carrying amount in the consolidated financial statements and its tax base.

Tax base is frequently cost or indexed cost. This temporary difference is referred to as ‘outside Basis’ difference. The temporary difference relating to the investment might arise for a number of reasons.

The most common reason is the existence of undistributed profits in the investee that increase the parent’s investment in the investee to above its tax cost. The investor does not control distributions from an associate and might not control distributions from a joint venture. A deferred tax liability is likely to be required for the outside basis difference.