What do levies look like?

These examples accompany, but are not part of IFRIC 21.

The objective of these examples is to illustrate how an entity should account for a liability to pay a levy in its annual financial statements and in its interim financial report.

Example — A levy is triggered progressively as the entity generates revenue

Entity A has an annual reporting period that ends on December 31. In accordance with legislation, a levy is triggered progressively as an entity generates revenue in 20X1. The amount of the levy is calculated by reference to revenue generated by the entity in 20X1.

In this example, the liability is recognized progressively during 20X1 as Entity A generates revenue, because the obligating event, as identified by the legislation, is the generation of revenue during 20X1. At any point in 20X1, Entity A has a present obligation to pay a levy on revenue generated to date. Entity A has no present obligation to pay a levy that will arise from generating revenue in the future.

In the interim financial report (if any), the liability is recognized progressively as Entity A generates revenue. Entity A has a present obligation to pay the levy on revenue generated from January 1, 20X1 to the end of the interim period.

Example — A levy is triggered in full if the entity operates as a bank at a specified date

Entity C is a bank and has an annual reporting period that ends on December 31. In accordance with legislation, a levy is triggered in full only if an entity operates as a bank at the end of the annual reporting period. The amount of the levy is calculated by reference to the amounts in the statement of financial position of the entity at the end of the annual reporting period. The end of the annual reporting period of Entity C is December 31, 20X1.

In this example, the liability is recognized on December 31, 20X1 because the obligating event, as identified by the legislation, is Entity C operating as a bank at the end of the annual reporting period. Before that point, Entity C has no present obligation to pay a levy, even if it is economically compelled to continue to operate as a bank in the future. In other words, the activity that triggers the payment of the levy, as identified by the legislation, is the entity operating as a bank at the end of the annual reporting period, which does not occur until December 31, 20X1. The conclusion would not change even if the amount of the liability is based on the length of the reporting period, because the obligating event is the entity operating as a bank at the end of the annual reporting period.

In the interim financial report (if any), the liability is recognized in full in the interim period in which December 31, 20X1 falls because the liability is recognized in full on that date.

Example — A levy is triggered if the entity generates revenue above a minimum amount of revenue

Entity D has an annual reporting period that ends on December 31. In accordance with legislation, a levy is triggered if an entity generates revenue above $50 million in 20X1. The amount of the levy is calculated by reference to revenue generated above $50 million, with the levy rate at 0 per cent for the first $50 million revenue generated (below the threshold) and 2 per cent above $50 million revenue. Entity D’s revenue reaches the revenue threshold of $50 million on July 17, 20X1.

In this example, the liability is recognized between July 17, 20X1 and December 31, 20X1 as Entity D generates revenue above the threshold because the obligating event, as identified by the legislation, is the activity undertaken after the threshold is reached (i.e., the generation of revenue after the threshold is reached). The amount of the liability is based on the revenue generated to date that exceeds the threshold of $50 million revenue.

In the interim financial report (if any), the liability is recognized between July 17, 20X1 and December 31, 20X1 as Entity D generates revenue above the threshold.