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FRC’s Response to IASB’s Exposure Draft Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures

Dr Andreas Barckow IASB Chair IFRS Foundation Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD

21 November 2024

Exposure Draft IASB/ED/2024/5 Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures

Dear Andreas,

I am writing on behalf of the UK's Financial Reporting Council (FRC) in response to the above Exposure Draft.

This response draws on the FRC's experience in developing financial reporting standards applicable in the UK and Republic of Ireland. The FRC's overriding objective in developing financial reporting standards is to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs. In achieving its overriding objective, the FRC aims to provide succinct financial reporting standards that, amongst other things, have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective.

The FRC's accounting standards include FRS 101 Reduced Disclosure Framework, which has a similar purpose to IFRS 19 although with a different scope and constructed in a different manner. FRS 101 became effective in 2015 and it has proved popular with eligible preparers.

Our comments in response to your questions are included in the Appendix. If you have any queries or would like to discuss our comments in more detail, please do not hesitate to contact Stephen Maloney (Senior Project Director) or Merrik Bousfield (Project Director) at [email protected].

Yours sincerely

Mark Babington Executive Director, Regulatory Standards Direct telephone line: 020 7492 2323 Email: [email protected]

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1. Introduction

This report outlines the Financial Reporting Council's (FRC) response to the International Accounting Standards Board's (IASB) Exposure Draft IASB/ED/2024/5, Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures. The FRC's comments reflect its experience in developing financial reporting standards applicable in the UK and Republic of Ireland, focusing on the objective of providing high-quality, understandable, and proportionate financial reporting.

2. General Comments

The FRC's accounting standards include FRS 101 Reduced Disclosure Framework, which shares a similar purpose with IFRS 19, albeit with different scope and construction. FRS 101 has been effective since 2015 and is widely adopted by eligible preparers.

Our detailed comments, addressing specific questions raised in the Exposure Draft, are presented below. For any further queries or discussion, please contact Stephen Maloney (Senior Project Director) or Merrik Bousfield (Project Director) at [email protected].

Name of Respondent:	Mark Babington – Executive Director, Regulatory Standards
Organisation:	Financial Reporting Council
Jurisdiction:	United Kingdom
Correspondence and/or email address:	[email protected]

Question 1—Presentation and disclosure in financial statements (proposed amendments to paragraphs 137, 142–159 and 163 of IFRS 19, paragraph A3 in Appendix A of IFRS 19 and paragraph B8 of Appendix B of IFRS 19)

The IASB is proposing to retain the disclosure requirements in IFRS 19 relating to IFRS 18. The only substantial change proposed is to remove from IFRS 19 the requirements relating to management-defined performance measures. Instead, an eligible subsidiary that uses management-defined performance measures as defined in IFRS 18 would be required to apply the related disclosure requirements in IFRS 18. The IASB is also proposing to remove the disclosure objective in paragraph 137 of IFRS 19 relating to non-current liabilities with covenants.

Paragraphs BC6–BC13 of the Basis for Conclusions on this Exposure Draft explain the IASB's rationale for this proposal.

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Financial Reporting Council (Major section - H2)

Statement of Financial Reporting Council responsibilities (Subsection - H3)

This statement confirms that the FRC applies financial reporting standards applicable in the UK and Republic of Ireland. This report also confirms the FRC’s overriding objective in developing financial reporting standards to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users’ information needs. In achieving its overriding objective, the FRC aims to provide succinct financial reporting standards that, amongst other things, have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective.

The FRC’s accounting standards include FRS 101 Reduced Disclosure Framework, which has a similar purpose to IFRS 19, although with a different scope and constructed in a different manner. FRS 101 became effective in 2015 and it has proved popular with eligible preparers.

Our comments in response to your questions are included in the Appendix. If you have any queries or would like to discuss our comments in more detail, please do not hesitate to contact Stephen Maloney (Senior Project Director) or Merrik Bousfield (Project Director) at [email protected].

Concluding Remarks

Yours sincerely

Mark Babington Executive Director, Regulatory Standards Direct telephone line: 020 7492 2323 Email: [email protected]

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Financial Reporting Council

The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered office: 8th Floor, 125 London Wall, London EC2Y 5AS. Please see our privacy page at https://www.frc.org.uk/about-the-frc/procedures-and-policies/privacy-the-frc if you would like to know more about how the FRC processes personal data or if you would like to stop receiving FRC news, events, outreach or research related communications.

Appendix: FRC's Response to IASB Exposure Draft ED/2024/5

Name of Respondent:	Mark Babington – Executive Director, Regulatory Standards
Organisation:	Financial Reporting Council
Jurisdiction:	United Kingdom
Correspondence and/or email address:	[email protected]

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Financial Reporting Council (Major section - H2)

Statement of Financial Reporting Council responsibilities (Subsection - H3)

This statement confirms that the FRC applies financial reporting standards applicable in the UK and Republic of Ireland. This report also confirms the FRC’s overriding objective in developing financial reporting standards to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users’ information needs. In achieving its overriding objective, the FRC aims to provide succinct financial reporting standards that, amongst other things, have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective.

The FRC’s accounting standards include FRS 101 Reduced Disclosure Framework, which has a similar purpose to IFRS 19, although with a different scope and constructed in a different manner. FRS 101 became effective in 2015 and it has proved popular with eligible preparers.

Our comments in response to your questions are included in the Appendix. If you have any queries or would like to discuss our comments in more detail, please do not hesitate to contact Stephen Maloney (Senior Project Director) or Merrik Bousfield (Project Director) at [email protected].

Concluding Remarks

Yours sincerely

Mark Babington Executive Director, Regulatory Standards Direct telephone line: 020 7492 2323 Email: [email protected]

---

Financial Reporting Council

The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered office: 8th Floor, 125 London Wall, London EC2Y 5AS. Please see our privacy page at https://www.frc.org.uk/about-the-frc/procedures-and-policies/privacy-the-frc if you would like to know more about how the FRC processes personal data or if you would like to stop receiving FRC news, events, outreach or research related communications.

Appendix: FRC's Response to IASB Exposure Draft ED/2024/5

Name of Respondent:	Mark Babington – Executive Director, Regulatory Standards
Organisation:	Financial Reporting Council
Jurisdiction:	United Kingdom
Correspondence and/or email address:	[email protected]

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Introduction

This report covers key considerations for companies engaging in cross-border e-commerce, specifically focusing on indirect taxes like VAT/GST. It highlights recent developments, key challenges, and potential solutions to ensure compliance and optimize global strategies.

Recent Developments in Cross-Border E-commerce and Indirect Taxes

The landscape of cross-border e-commerce is rapidly evolving, driven by globalization and technological advancements. This evolution presents both opportunities and challenges for businesses, particularly concerning indirect tax compliance. Recent years have seen significant changes in how VAT and GST are applied to international online sales, with many jurisdictions implementing new rules to ensure fair taxation and level the playing field between domestic and foreign suppliers.

Key Changes and Trends

• OECD Guidelines: The Organisation for Economic Co-operation and Development (OECD) has been instrumental in developing international guidelines for taxing the digital economy, influencing national legislations worldwide.
• VAT/GST on Low-Value Goods: Many countries have abolished low-value consignment relief (LVCR), meaning VAT/GST is now due on almost all imports, regardless of value. This shifts the point of collection from the consumer to the seller or online marketplace.
• Marketplace Liability: There is a growing trend for online marketplaces to be held jointly and severally liable for VAT/GST on sales facilitated through their platforms, particularly for non-resident sellers.
• Simplification Measures: Jurisdictions are introducing simplified registration and reporting schemes (e.g., EU's One-Stop Shop (OSS), UK's VAT Mini One Stop Shop (MOSS) successor) to ease the compliance burden for businesses.
• Digital Services Taxes (DSTs): While separate from VAT/GST, DSTs levied on the revenue of large digital companies represent another layer of complexity in international taxation.

Impact on Businesses

These changes have profound implications for e-commerce businesses:

• Increased Compliance Burden: Companies must understand and comply with a myriad of tax rules in multiple jurisdictions, requiring robust systems and processes.
• Pricing Strategy Adjustments: The inclusion of VAT/GST on low-value goods necessitates re-evaluation of pricing strategies to remain competitive.
• Supply Chain Optimization: Businesses may need to rethink their supply chain structures to manage tax liabilities efficiently.
• Technological Solutions: Investment in tax technology solutions is becoming essential to automate calculations, registrations, and reporting.

Key Challenges for Cross-Border E-commerce Businesses

Navigating the complex indirect tax landscape poses several significant challenges.

1. Tax Registration and Compliance

Identifying where and when to register for VAT/GST in different countries is a major hurdle. Thresholds vary, and the definitions of "taxable person" or "establishment" can be ambiguous in an online context. Errors can lead to penalties and reputational damage.

2. Determining the Place of Supply

The "place of supply" rules dictate which country's VAT/GST applies. For digital services and goods, these rules can be intricate, often depending on the location of the customer, the type of service, or the origin and destination of goods.

3. Data Collection and Reporting

Accurate data collection is paramount for tax compliance. Businesses need to capture customer location, transaction value, product classification, and other details to correctly calculate and report taxes. Reporting requirements differ significantly across jurisdictions, adding to the administrative load.

4. Currency Conversion and Exchange Rate Fluctuations

E-commerce often involves transactions in multiple currencies. Accurately converting sales figures for tax purposes and managing the impact of exchange rate fluctuations on tax liabilities requires careful attention.

5. Managing Customs and Duties

While separate from VAT/GST, customs duties are another indirect tax on imports. Businesses need to understand tariff codes, origin rules, and customs procedures to ensure smooth border crossings and avoid unexpected costs or delays.

Solutions and Best Practices

To overcome these challenges, businesses should adopt a strategic approach.

1. Leverage Technology and Automation

Invest in specialized tax software or integrate tax compliance features into existing ERP or e-commerce platforms. Automated solutions can:

• Determine nexus and registration requirements.
• Calculate VAT/GST rates accurately based on jurisdiction and product.
• Manage currency conversions.
• Generate compliant invoices and reports.
• Automate tax filings.

2. Centralized Tax Strategy and Governance

Develop a clear, centralized indirect tax strategy that covers all relevant jurisdictions. This includes:

• Appointing a dedicated tax team or external advisor.
• Establishing clear internal policies and procedures for tax compliance.
• Regularly monitoring changes in tax legislation.

3. Understanding Incoterms and Delivery Duties

Clearly define delivery terms (e.g., using Incoterms like DDP – Delivered Duty Paid) to allocate responsibility for duties and taxes. This impacts pricing, customer experience, and compliance.

4. Utilize Marketplace Solutions

For businesses selling through online marketplaces, understand their tax facilitation services. Many marketplaces now handle VAT/GST collection and remittance, simplifying compliance for sellers.

5. Customer Education and Transparency

Clearly communicate tax implications to customers at the point of sale. Transparency about pricing, including taxes and duties, helps build trust and reduces customer service inquiries related to unexpected charges.

Conclusion

The complexities of indirect taxes in cross-border e-commerce are significant but manageable with proactive strategies and the right technological tools. By staying informed about evolving regulations, implementing robust compliance processes, and leveraging automation, businesses can navigate the global tax landscape effectively, ensuring compliance while capitalizing on the opportunities presented by the ever-expanding digital marketplace.

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Name FRC’s Response to IASB’s Exposure Draft Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures

Publication date 21 November 2024

Type Response to external consultations

Format PDF, 1.3 MB

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