A deferred tax asset is a recoverable amount of tax in future periods for deductible temporary differences, accumulated tax losses or accumulated tax credits.
In the field of accounting, a deferred tax asset refers to those income taxes that an individual or a company can recover in the next fiscal years.
In this sense, it should be remembered that a deferred tax responds to the recognition of taxes to be canceled or to stop paying in the future. That is, they will be considered in subsequent periods and not in the present.
Basically, this concept assumes that the Administration allows to offset accumulated loss situations with future benefits in the following years, as long as it is assumed that there will be successive gains.
The concept of deferred tax asset is regulated in the laws of each territory within their corresponding accounting regulations. For example, in the case of the Spanish General Accounting Plan, it is assigned to accounting account 474.
In addition, this account is formally placed on the balance sheet as part of non-current assets.
Causes of appearance of deferred tax asset
These amounts arise as a consequence of some accounting situations to take into account:
- Existence of deductible temporary differences: To be offset in future earnings statements.
- Unused or unallocated accumulated losses: They are located in the tax bases pending compensation in future years, since they have not been subject to tax deduction for the moment.
- Accumulated credits not used or assigned: Similarly, they have the characteristic of being pending compensation in the future.
In summary, the deferred tax asset results from amounts pending compensation from now on when settling different taxes on income obtained or profits.
For this reason, it is commonly related to common taxes such as personal income tax or corporation tax.
Settlement of the deferred tax asset
From the accounting point of view, these assets cannot be economically compensated with deferred tax liabilities, not even taking place in the same fiscal year.
The correct thing to do is to carry out said settlement in successive years by means of taxes that impose future benefits and of two main causes:
- Recovery of assets.
- Liquidation of the liabilities originating from these.
Conversion of deferred tax asset
In various accounting laws, it is possible to treat these assets in the form of credit. In other words, formally a company has the ability to convert a deferred tax asset into a receivable from the Administration.
In this way, they acquire the possibility of demanding their effective payment or the compensation of tax debts of another nature.
For this, it is necessary to fulfill the following requirements, which vary depending on the economic and accounting regime of each territory:
- Accounting loss record: The taxpayer company must have accounting losses recorded in its annual accounts. The Administration must verify said information to give official validity.
- Insolvency situation: The company in question must be in a situation of liquidation, effective dissolution or formal declaration of insolvency.