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:

$$\textsf{Deferred Tax Liability} = \textsf{Taxable Temporary Differences} \times \textsf{Statutory Tax Rate}$$

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.