IFRIC 23 uncertain tax treatments

Most groups have tax positions that a tax authority could challenge: transfer prices, the deductibility of an expense, the use of a relief. IFRIC 23 decides how much tax to recognise for them. This guide explains the test, the two measurement methods, and works through examples of each.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

IFRIC 23 sets out how to reflect uncertainty over income tax treatments under IAS 12. A company asks whether it is probable that the tax authority will accept an uncertain tax treatment, assuming the authority will examine it with full knowledge. If acceptance is probable, the tax figures follow the treatment as filed. If not, the company reflects the uncertainty using whichever of the most likely amount or the expected value better predicts how it will be resolved.

At a glance

Applies to
Income taxes under IAS 12
Unit
Each treatment, or a group of related ones
Detection risk
Ignored: full knowledge assumed
Test
Is acceptance probable?
Measure
Most likely amount or expected value
Reassess
When facts change
IFRIC 23 uncertain tax treatmentsApplies to: Income taxes under IAS 12; Unit: Each treatment, or a group of related ones; Detection risk: Ignored: full knowledge assumed; Test: Is acceptance probable?; Measure: Most likely amount or expected value; Reassess: When facts change.KEY FACTS AT A GLANCEIFRIC 23 uncertain tax treatmentsApplies toIncome taxes under IAS 12UnitEach treatment, or agroup of related onesDetection riskIgnored: full knowledgeassumedTestIs acceptance probable?MeasureMost likely amount orexpected valueReassessWhen facts changeChecked against official sourcesTax BakersIFRIC 23 uncertain tax treatmentsApplies to: Income taxes under IAS 12; Unit: Each treatment, or a group of related ones; Detection risk: Ignored: full knowledge assumed; Test: Is acceptance probable?; Measure: Most likely amount or expected value; Reassess: When facts change.KEY FACTS AT A GLANCEIFRIC 23 uncertain tax treatmentsApplies toIncome taxes under IAS 12UnitEach treatment, or a group of related onesDetection riskIgnored: full knowledge assumedTestIs acceptance probable?MeasureMost likely amount or expected valueReassessWhen facts changeChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How does the IFRIC 23 test work?

How much tax to recognise for an uncertain treatmentHow much tax to recognise for an uncertain treatmentIs it probable the authority willaccept the treatment as filed?YesUse the treatmentas filedNoAre the outcomes all-or-nothing,or concentrated on one value?YesMost likelyamountNoExpected value of the outcomes
Assume the tax authority examines with full knowledge; detection risk is ignored.
  1. Unit of account. Decide whether to consider each uncertain tax treatment separately or together with related ones, choosing whichever better predicts the resolution.
  2. Assume examination. Assume the tax authority will examine the amounts it has a right to examine and will have full knowledge of all relevant information. Detection risk is ignored.
  3. Probable acceptance. If it is probable the authority will accept the treatment, taxable profit, tax bases, losses and rates follow the tax return.
  4. Measure the uncertainty. If not probable, reflect it using the most likely amount or the expected value.

Most likely amount or expected value?

MethodWhen it predicts betterHow it works
Most likely amountOutcomes are binary or concentrated on one valueThe single most likely outcome
Expected valueThere is a range of possible outcomesProbability-weighted average of the outcomes

Example 1: an all-or-nothing deduction

A company deducts a 1,000,000 payment that the tax authority may treat as non-deductible. At 25%, the tax at stake is 250,000. Advisers put the chance of the deduction being upheld at 40%, so acceptance is not probable. The outcome is binary, so the most likely amount, disallowance, predicts best: the company recognises an additional 250,000 of current tax liability, even though it filed the deduction.

Example 2: a transfer pricing range

A group charges a management fee to a subsidiary abroad. It judges that the authority will probably challenge the fee, with these possible adjustments to tax payable:

Additional taxProbabilityWeighted
020%0
100,00050%50,000
300,00030%90,000
Expected value100%140,000

With a spread of outcomes, the expected value of 140,000 better predicts the resolution than the most likely amount of 100,000.

Where are uncertain tax liabilities presented?

As current or deferred tax liabilities or assets, not as provisions under IAS 37. The IFRS Interpretations Committee confirmed in 2019 that they are presented within tax balances. Interest and penalties follow IAS 12 if they are income taxes, and otherwise IAS 37.

When are the judgements revisited?

When facts and circumstances change or new information emerges: an examination by the authority, the authority's action on a similar case, a court ruling, or the expiry of the authority's right to examine. The lack of any response from the authority alone is unlikely to change the assessment, and neither is the passage of time on its own.

What must be disclosed?

IFRIC 23 adds no new disclosures, but IAS 1 requires disclosure of significant judgements, and IAS 12 and IAS 1 require information about key sources of estimation uncertainty. In practice, groups describe the nature of significant uncertain tax treatments, the jurisdictions involved, and how much the estimates could change, and IAS 37 contingent liability disclosures may apply to related tax disputes.

How does US GAAP compare?

US GAAP uses a two-step test: recognise a benefit only if it is more likely than not to be sustained, then measure it at the largest amount more than 50% likely to be realised. See IAS 12 vs ASC 740 and IAS 12 explained.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

What is IFRIC 23?

An IFRS Interpretation on how to apply IAS 12 when there is uncertainty over income tax treatments.

What is the most likely amount vs expected value under IFRIC 23?

The most likely amount is the single most likely outcome, suited to binary cases; the expected value is the probability-weighted average, suited to a range of outcomes.

Does IFRIC 23 allow for detection risk?

No. It assumes the tax authority will examine the treatment with full knowledge of all relevant information.

Are uncertain tax liabilities provisions under IAS 37?

No. They are presented as current or deferred tax liabilities.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 12 Income Taxes
  2. IFRS Foundation: IFRIC 23 Uncertainty over Income Tax Treatments

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS vs US GAAPIAS 12 vs ASC 740: income tax differencesIAS 12IAS 12 income taxes explainedIAS 12Recognising deferred tax assets and tax losses

More in IAS 12

Next in this topicPillar Two global minimum tax and IAS 12TopicAll 6 guides in IAS 12

This guide is general information. It is not tax or legal advice for your situation.