Housing company may omit improbable deferred tax but must note it

A housing company may leave the deferred tax liability on a KPL 5:17 revaluation of land, water areas or old-law buildings off its balance sheet when sale is not intended and the tax effect is assessed as improbableKirjanpitolautakunta, but it must still give the KPA 2:6 note when the liability is materialKirjanpitolautakunta. The Accounting Board drew that line in statement 2159 on an asunto-osakeyhtiö revaluation.

The applicant asked whether the liability must be recognised even when disposal, and thus the tax charge, is extremely improbable given the company's field, and whether non-recognition and its grounds must then be explained in the notes. The background was the Board's 12 September 2006 guidance, which as a main rule requires a deferred liability for every revaluation and forbids replacing it with a net revaluation. The applicant argued the housing form justifies departure: its exclusive purpose is as a rule to manage the property for shareholders, not to sell the land or residential buildings in the articles, so a taxable disposal is extremely improbable, and booking a theoretical liability that is not probable would offend the true-and-fair requirement in KPL 3:2.

The provisions are permissive and prudence-bound. Under KPL 5:17, where the probable disposal price of land or water areas permanently and materially exceeds cost, a revaluation of up to the difference may be recognised with consistency and prudence. Under KPL 5:18, deferred liabilities and assets from timing and temporary differences between carrying and tax values may be recognised separately with prudence. The 2004 amendment extended that permission to valuation differences including revaluations. The current Accounting Directive 2013/34/EU has no separate-accounts recognition rule but refers in Article 17(1)(f) to provisions booked for deferred taxes, while Article 24(13) requires recognition in consolidated accounts where payment in the near future is probable.

The guidance sharpens the main rule but leaves a narrow exception. It treats a revaluation as a taxable temporary difference on sale, requires computation, forbids netting, and states good practice is always to recognise. Given special prudence, cases of non-recognition for improbable realisation are said to be quite rare. Earlier positions confirm the separate-accounts permission is voluntary: KILA 1582/1999 stresses prudence and narrow construction but does not exclude non-recognition on sufficient strictly construed grounds, with grounds in the notes; KILA 1668/2001 recommends allowing for the liability and presenting it in the balance sheet or notes even below the maximum; KILA 1898/2012 confirms voluntary recognition with a KPA 2:6.1 note when material items are omitted.

Housing-company purpose fits that narrow exception. The Housing Companies Act requires over half the floor area to be designated in the articles as shareholder-controlled dwellings. In that light good practice does not prevent treating the liability as one left off the balance sheet for improbable realisation, on condition that the company does not intend to sell the revalued property and assesses the tax effect as improbableKirjanpitolautakunta.

The note duty is stricter. Under KPA 2:6, deferred items under 5:18 must be disclosed when material and not recognisedKirjanpitolautakunta; when immaterial, no note is required. Supplementing KILA 1582/1999, the notes must be given even though the asset is not intended to be sold and even though realisation is improbableKirjanpitolautakunta. No separate duty to state reasons for non-recognition follows from the rules, guidance or good practiceKirjanpitolautakunta, but following guidance 7.2 and PMA 3:4 it is good practice to explain the tax effects of the revaluation reserve.

Legal basis: kirjanpitolaki 5:17, 5:18 and 3:2; kirjanpitoasetus 2:6; asunto-osakeyhtiölaki 1599/2009; PMA 3:4; tilinpäätösdirektiivi 2013/34/EU, 16.1 b, 17.1 f and 24.13 artikla.