What are Deferred Tax Liabilities (Non-Current)?

Deferred Tax Liabilities (Non-Current) arise when taxable income is lower than accounting income due to timing differences—such as depreciation methods or revenue recognition—that will reverse in periods beyond the next twelve months. They are recorded as long-term liabilities on the balance sheet.

Why are Deferred Tax Liabilities (Non-Current) Important?

Tracking non-current deferred tax liabilities is important because they:

• Signal Future Tax Obligations: Indicate taxes that will become payable when temporary differences reverse in future periods.
• Impact Long-Term Planning: Affect cash flow forecasts and capital allocation decisions over multiple years.
• Reflect Accounting vs. Tax Policy: Reveal the impact of differing depreciation, amortization, and revenue recognition methods between financial reporting and tax authorities.

How are Deferred Tax Liabilities (Non-Current) Calculated?

Deferred Tax Liabilities are measured by applying the statutory tax rate to the taxable temporary differences that will reverse after one year:

Deferred Tax Liability = Taxable Temporary Differences × Statutory Tax Rate

Where:

• Taxable Temporary Differences include differences like accelerated tax depreciation exceeding accounting depreciation, or revenue recognized sooner for accounting than for tax.
• Statutory Tax Rate is the enacted tax rate expected to apply when the differences reverse.

Additional Considerations

• Reconciliation and Disclosure: Companies reconcile the opening and closing balances of deferred tax liabilities in notes, explaining major drivers.
• Rate Changes: Changes in tax rates require remeasuring deferred tax balances, affecting earnings.
• Offsetting: Under accounting standards, deferred tax liabilities may be offset against deferred tax assets when they relate to the same taxing jurisdiction and recoverability conditions.