IFRS 16 Accounting and tax treatment
With the entry into force of IFRS 16 on January 1, 2019, which constitutes the new leasing approach for Group 1 companies in Colombia, concerns arise regarding the accounting and tax treatment of leases that were previously classified as operative, by the tenants.
As a synthesis, the most important change proposed by IFRS 16 for the lessee is to unify the accounting treatment of the contracts that constitute leases, through the recognition and measurement of assets (rights of use) and financial liabilities arising from the lease, mainly equivalent. to the present value of the minimum payments associated with the contract according to their duration, and discounted using an interest rate; therefore, the application of the new approach replaces, except for certain exceptions, operating lease expense for depreciation expenses and interest expenses.
Now, the art. 127-1 of the Tax Statute determines the treatment of leasing contracts, defining the "Financial leasing or financial leasing, as that contract that has the object of the financed acquisition of an asset", and then involving the five characteristics of financial leasing differentiation and existing operations in IAS 17, which revolve around the notion of transfer of the risks and benefits inherent to ownership of the assets.
The aforementioned article establishes for the lessee the following tax treatments for purposes of income tax, of the two visible lease classifications:
"At the beginning of the contract, the lessee must recognize an asset and a lease liability, which corresponds to the present value of the lease fees, the purchase option and the residual guarantee value, if applicable, calculated on the date of the lease. initiation of the contract, and at the rate agreed in the contract. The sum recorded as a liability by the lessee must coincide with that registered by the lessor as lease assets.
The value registered in the asset by the lessee, except for the part corresponding to the sales tax that is to be deducted or deducted, will have the nature of an asset which may be amortized or depreciated in the terms provided in this bylaw as if the Well leased out of your property.
The lease fees caused by the lessee must be decomposed in the part corresponding to the payment to capital and the part corresponding to interest or financial cost. The part corresponding to capital installments will be charged directly against the liability recorded by the lessee, as a lower value of the latter. The part of each canon corresponding to interest or financial cost, will be a deductible expense for the tenant subject to the limitations for the deduction of interest.
When exercising the purchase option, the value agreed for this purpose will be charged against the liabilities of the lessee, which must be left in zeros. Any difference will be adjusted as income or expense. In the event that the lessee does not exercise the purchase option, the tax adjustments will be made on the asset and on the liability, and any difference that arises will not have an effect on the income tax, as long as it has not generated a cost or deductible expense, in which case it will be treated as a deduction recovery. "
"The lessee shall recognize as a deductible expense the entire lease payment made without having to recognize as an asset or liability any sum for the leased asset."
As a conclusion, according to the tax and accounting demarcations that have been contextualized, the following can be extracted:
For the art. 127-1 of the E.T. only leasing contracts or financial leases are those that are aimed at the financed acquisition of an asset, that is, those that do not contractually conclude an alienation, can not be considered as financial leases; therefore, all other lease agreements are treated as operating leases.
For operating leases, from the perspective of the lessee, a similar treatment to that of a financial lease is not allowed, but instead the fees in full are recognized as deductible expenses.
Therefore, companies in their application of IFRS 16 as of January 1, 2019 must prepare to maintain and control two types of temporary differences, generating deferred taxes, from this item:
a. Temporary differences for lease agreements that are not aimed at the acquisition of an asset, but that from IFRS 16 are essentially financial leases; and
b. Temporary differences arising from the assets and liabilities recognized for operating leases following the accounting approach of IFRS 16, but which do not exist fiscally as such.