Depreciation and deferred tax in income tax settlement

Abstract

The simultaneous application of International Financial Reporting Standards and Ecuadorian tax regulations generates differences in the recognition and measurement of depreciation of fixed assets, with direct effects on the determination of income tax and the recognition of deferred taxes. In this context, this study aims to analyze the accounting and tax treatment of financial depreciation and deferred tax in Ecuadorian companies, with an emphasis on temporary differences arising from discrepancies between the estimated useful life under accounting criteria and the deductibility limits established by tax legislation. The research was conducted using a documentary and descriptive approach, based on an analysis of IAS 12 Income Taxes, IAS 16 Property, Plant and Equipment, Section 29 of the IFRS for SMEs, the Regulations for the Application of the Internal Tax Regime Law, and the guidelines of Form 101. A practical case study is also presented, applied to a vehicle financially depreciated over three years, compared to the 20% annual tax deduction limit. The results show that financial depreciation exceeding the tax limit generates deductible temporary differences that may lead to the recognition of deferred tax assets, provided there is a probability of recovery through future taxable profits. Furthermore, the appropriate treatment of these differences in tax reconciliation and their recording in the corresponding fields of Form 101 are identified. It is concluded that the correct alignment between accounting and tax regulations promotes the accuracy of financial statements, improves the transparency of tax information, and contributes to the proper management of corporate tax obligations