How are provisions and accruals treated for Corporate Tax?

Article 20. 3. For the purposes of Clauses 1 and 2 of this Article, the decision to make an election, or not to make an election, shall be made by the Taxable Person during the first Ministerial Decision No. 134 of 2023 – As published by Ministry of Finance 7 Tax Period and shall be deemed irrevocable, except under exceptional circumstances and pursuant to approval by the Authority.

Article 8 – Conditions to Elect the Use of the Realisation Basis 1. For the purposes of Clause 3 of Article 20 of the Corporate Tax Law, a Taxable Person that prepares Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses on a realisation basis, subject to the provisions of Clause 2 of this Article. 2. Banks and Insurance Providers that are Taxable Persons and that prepare Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses only on a realisation basis in accordance with paragraph (b) of Clause 3 of

used to pay any Corporate Tax liability that may arise as a result. An example of this would be a change in the exchange rate affecting the value of a foreign currency contract to be settled in a future Tax Period. Another example would be the creation or release of a provision for a doubtful debt. To prevent a Corporate Tax liability arising where there is no consideration to fund the resulting Corporate Tax payable, Taxable Persons who prepare their Financial Statements on an Accrual Basis of Accounting may elect to take into account gains and losses on a realisation basis.21 This means that, for the purposes of calculating their Taxable Income for a Tax Period, instead of gains and losses in respect of assets and liabilities being determined on the basis of revaluation or other change in book value, gains or losses are taken into account only when an asset is disposed of or a liability is settled, or a different realisation event occurs. 5.2.1. What constitutes realisation? The realisation of an asset or a liability includes, but is not limited to, the following: 22 • • The sale, disposal, transfer (other than non-taxable transfers described below), settlement and complete worthlessness of an asset as per the Accounting Standards used by the Taxable Person. The settlement, assignment, transfer (other than non-taxable transfers described below), and forgiveness of a liability as per the Accounting Standards used by the Taxable Person. On the other hand, certain transfers are not considered a realisation of assets or liabilities. These include:23 • • A non-taxable transfer of assets or liabilities between members of a Qualifying Group (that is not a Tax Group) as defined under Article 26 of the Corporate Tax Law. A transfer of assets or liabilities which qualifies for Business Restructuring Relief under Article 27 of the Corporate Tax Law. 21 Article 20(3) of the Corporate Tax Law. 22 Article 9(2) of Ministerial Decision No. 134 of 2023. 23 Article 9(1) of Ministerial Decision No. 134 of 2023. Corporate Tax Guide | Accounting Standards | CTGACS1 21