1.17 The tax note does not give the temporary differences on investments in subsidiaries for which no deferred tax liability is recognised
UK Company A · a UK-listed medical technology group · Regulator-style question
In brief
The tax policy says deferred tax is not recognised on temporary differences relating [wording masked] controls the timing of reversal. IAS 12 then requires the aggregate amount of those temporary differences to be disclosed. Neither year's note gives an amount, a nil statement or an explanation, although the tax reconciliation shows a withholding tax charge each year.
The evidence, as filed
Further pages withheld to protect the company’s identity (four): Annual Report 2025, page 224; Annual Report 2024, page 206; Annual Report 2024, page 209; Annual Report 2025, page 227. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
Names, figures, dates, logos and any wording that could be searched back to the company are boxed out in grey; the point is highlighted in yellow.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows Policy sentence on non-recognition of deferred tax on investments in subsidiaries and associates; no amount of the related temporary differences in the deferred tax note in either year; withholding tax of [amount] (2024: [amount]) in the tax reconciliation. | What the rule requires The aggregate temporary differences associated with investments in subsidiaries and associates for which no deferred tax liability is recognised (IAS 12.81(f)), or a statement that the amount is nil or that no tax would arise on remittance and why. |
What we checked: Read the tax policy and Notes 5.1-5.2 in both reports against IAS 12.81; searched the whole 2025 report for the item.
The rule
IAS 12 Income Taxes, paragraph 81(f)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
The accounts must give the total temporary differences on investments in subsidiaries, branches, associates and joint arrangements for which no deferred tax liability has been recognised.
Why it applies here: The specific IAS 12.81(f) amount is not given in either year.
Why it matters
Users cannot gauge the tax that could arise if retained profits of overseas subsidiaries were remitted.
Exposure
A question; no breach is asserted until the amount is known.
Our workings
the policy (both reports) says [wording masked] controls the timing of reversal and reversal is not probable in the foreseeable future. Note 5.2 analyses recognised deferred tax and unused losses but gives no figure for these unrecognised temporary differences. The reconciliation includes withholding tax of [amount] in 2025 and [amount] in 2024.
IAS 12.39 creates an exception from recognising a deferred tax liability on outside-basis differences; the price of the exception is paragraph 81(f), which requires the aggregate amount of the temporary differences (not the tax on them, which paragraph 87 accepts is often impracticable to compute). The grey area is materiality of information: for a UK-parented group whose foreign dividends are generally exempt, the tax that would arise on remittance may be small, and the company could argue the gross amount would not influence users. That argument is respectable, which is why this is put as a question: but the reconciliation shows a withholding tax charge each year (its source is not stated), and the group has profitable subsidiaries in many jurisdictions, so the size of the unrecognised differences is information a user could need to judge the exposure. Only management knows the amount.
Management’s best defence, and our reply
Management would say that UK dividend exemption and treaty relief mean little or no tax would arise if overseas profits were remitted, so the gross amount of temporary differences would not influence any user and IAS 1.31 permits it to be left out. They would add that computing the gross differences across many subsidiaries is costly for information of little value. This is a tenable position, which is why the point is a question; however, the reconciliation shows a withholding tax charge every year, so a nil or immaterial conclusion should at least be stated.
The fix
- Add to Note 5.2: 'At [date] the aggregate temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised were $Xm (2024: $Ym); the tax that would arise on remittance is mainly withholding tax.'
Question for the company
What is the aggregate amount of temporary differences associated with investments in subsidiaries and associates for which no deferred tax liability was recognised at [date] and 2024, and if the company considers it immaterial or nil, on what basis, given that the tax reconciliation shows a withholding tax charge each year?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The group uses the IAS 12.39 exception (2025) | Document | Annual Report 2025, page 224 |
| 2 | A withholding tax charge appears in the reconciliation each year | Document | Annual Report 2025, page 226 |
| 3 | The same exception in the 2024 report | Document | Annual Report 2024, page 206 |
Absence check
- Document
- Annual Report 2025
- Where it would appear
- The deferred tax asset of [amount]
- What is missing
- the aggregate temporary differences on investments in subsidiaries and associates for which no deferred tax liability is recognised
- Pages looked at
- p.224-227 (Note 5) and p.266-270 (Company notes)
- Result
- 'temporary differences related to investments' hits p.224 only (the policy sentence, no amount); 'withholding tax' hits p.226 (the reconciliation line), p.293 and [n] (depositary charges and the taxation of dividends to shareholders), none giving the amount. 'unremitted', 'undistributed' and 'aggregate amount of temporary' have no hits.
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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