We paid significant amount of cash as advances for income tax liabilities in accordance with our tax legislation.

Are these prepayments for tax financial assets? Should we include them in expected credit loss calculation?

If not, what standard shall we apply?


No, income tax advances or prepayments are NOT financial assets and thus you should not apply IFRS 9 in this case.

The standard IAS 32 defines financial instruments as “any contract that gives rise to…”. Please focus on the word contract – it indicates that an entity voluntarily entered into it.

However, taxes are NOT contractual. They arise from the legislation, not from contract, and are far from voluntary.

Therefore, you should apply the standard IAS 12 Income taxes to the accounting and reporting of any income tax related assets or liabilities.

For more information, you can also see the application guidance of IAS 32, paragraph 12.