Deferred tax, brought to the table through the global minimum tax format, is a new concept here. Its main purpose is to show future tax positions that arise from the temporary effect of the accounting valuation of assets and liabilities shown in the report on a profit tax basis. Tax expert Andras Zaday, Partner of WTS Klient, answered the most important questions about deferred tax.
Who benefits from the appearance of deferred tax?
Deferred tax is an option in Hungarian accounting, i.e. it is not mandatory to present it. It can actually be applied to the 2023 report, and it is possible to make a decision in its favor later, but in the event of application, this decision must be recorded in the accounting policy. It is worth taking advantage of this opportunity for those companies for which the future tax implications of specific accounting assessments are important in terms of presenting the true picture.
For farmers who are member companies of a multinational corporate group, it is worth considering this option only because deferred tax is something well established in international practice.
Its application can reduce discrepancies between report figures prepared in accordance with local regulations and data prepared in accordance with IFRS or other accounting frameworks provided for consolidation. At the same time, it is important to emphasize that due to the accounting valuation principles of IFRS, which are different from Hungarian accounting, it is not almost certain that the same deferred tax assets or liabilities would arise in the case of a particular company in Hungarian accounting and IFRS reporting. .
What is it exactly?
Simply put: A deferred tax asset or deferred tax liability is the combined effect of assets and resources presented in the financial statements for a given year, or individual tax base reduction rights (deferred losses or tax benefits) on the earnings tax base for the given year. Subsequent tax years, which are calculated using the average profit tax rate for the following years. In the case of deferred tax, we are actually talking about the future tax impact of the accounting valuations chosen or applied for assets and liabilities. Deferred tax accruals arise in the case of tax recoverable in the following tax years, and deferred tax liabilities arise in the case of tax payable in the following tax years.
The deferred tax asset or deferred tax liability must be recalculated at each reporting date, and the accumulated change compared to the deferred tax asset or deferred tax liability shown in the prior business year must appear on a separate line for deferred tax differences in the income statement under Tax Liabilities.
– said tax expert Andras Zaday, Partner of WTS Klient.
Temporary differences and final differences
Only elements that modify the profit tax base and that have a temporary effect on the tax base may be taken into account, meaning that they will be reversed in the following years. Unique items that modify the final profit tax base, such as “costs not incurred for the benefit of the business” (such as penalties), cannot be taken into account when calculating deferred tax.
Elections used in accounting valuation – such as value adjustments – that have no effect on the accounting profit before tax or dividend tax base cannot be taken into account.
Requirement for creating a tax claim
Only deferred tax assets that represent temporary differences and are expected to be realized in the profit tax base in the following business years can be taken into account. That is, deferred tax claims can only be taken into account for deferred losses or tax benefits that are expected to pay off and can be used against future positive tax bases.
Tax calculation method
Practice knows several calculation methods. Assets, provisions and liabilities as well as unused accumulated losses and tax credits that will have an impact on the tax base for the following years can be taken into account individually. The value of the accumulated differences calculated at the expected profit tax rate will be the deferred tax claim or deferred tax liability.
It is important to emphasize that in this case we are not usually talking about the amending provisions of the profit tax base for a particular year. This is best illustrated by the method of combining the accounting balance sheet and the tax balance sheet.
The tax expert added. In this way, the accounting book value of all assets and liabilities and their registration value in accordance with the tax law are placed next to each other, and the deferred tax is due or DelayedTax liability.
Display in the report
It should be noted that, as with other types of taxes, current tax claims and tax liabilities to the same tax authority, i.e. deferred tax claim and deferred tax liability, must be shown in a consolidated and net manner on the balance sheet or on the balance sheet. Asset or liability aspect.
Thanks to the fact that deferred tax also appears in Hungarian accounting, both the balance sheet scheme according to accounting law and the profit and loss statement scheme are expanded.
Consolidated deferred tax assets should be shown on a separate line under “Fixed Assets,” while consolidated deferred tax liabilities should be shown on a new line under “Long-Term Liabilities.”
Application in the first year of work
Deferred tax appeared in Hungarian accounting with the amendment to the accounting law entering into force on December 31, 2023, and can be applied to 2023 accounts for the first time. If applied in the first business year, it is necessary to act as if the company had always used the deferred tax institution. In such cases, opening deferred tax claims must be made against retained earnings, or DelayedTax liabilities that already existed on the last day of the previous year.