Towards the end of 2012 the Revenue announced its plans to introduce the filing of iXBRL financial statements into the Irish corporation tax compliance process. It announced that the phased introduction for filing of iXBRL financial statements would commence in November 2012 with the first phase of mandatory filing being introduced as of October 2013.

When filing becomes mandatory for a taxpayer will depend upon whether or not they are a Large Case Division (“LCD”) taxpayer, whether they are a section 110 company and also whether they meet the iXBRL exemption criteria (see Appendix I).

What is iXBRL?

XBRL (eXtensible Business Reporting Language) is a global standard for exchanging business information. A primary use of XBRL is to define and exchange financial information, such as financial statements, in a computer readable format.

iXBRL (Inline XBRL) is a development of XBRL in which the XBRL data is embedded in an XML document such as a published report and accounts.

The preparation of iXBRL financial statements is the presentation of that set of financial statements in a computer readable format. It is achieved by tagging each piece of financial information with a label that identifies it in terms of standard accounting or tax concepts.

What does the mandatory filing of ixbrl financial statments mean for taxpayers?

Increased corporation tax compliance obligations

The filing of iXBRL financial statements will now form part of the corporation tax compliance process. Therefore, as well as filing a Form CT1 via ROS, a taxpayer that is subject to mandatory filing of iXBRL financial statements will also have to file its iXBRL financial statements via ROS. The due date for filing will be the same as the deadline for filing of the Form CT1.

Revenue has confirmed that it will adopt a “soft landing” approach and that it will for the moment allow a concession period of 21 days to file iXBRL financial statements after the date of filing the CT1 return. This means that if a taxpayer attempted a “best effort tagging” approach during the embryonic iXBRL reporting period, no financial penalties would be forthcoming.

How to prepare iXBRL Financial Statements

Once a taxpayer understands when the filing of iXBRL financial statements will become mandatory, they will have to decide how best to prepare their iXBRL financial statements. The number of companies within a group, the availability of appropriate in-house resources and the cost of outsourcing are often key deciding factors impacting upon this decision.

There are two main options available to taxpayers:

Conversion tools (in-house or outsource) – This involves a tag being manually “dragged and dropped” onto each individual item in the financial statements. This software then embeds XBRL into the financial statements and converts the output into iXBRL format. Converting Microsoft Word or Excel financial statements probably offers the most commercially viable solution with the least disruption. This conversion software can be purchased and used in house, with a member of the accounting or tax function completing the tagging. Alternatively, a third party can be engaged to use their conversion software and prepare the iXBRL financial statements for a taxpayer.

Accounts preparation software – Software that will produce the financial statements with iXBRL tags automatically built in can be purchased. This approach can be expensive and may be more suitable to larger groups.

Increased analysis capabilities

A combination of improved reporting and analysis capability for tax authorities as well as reduced related costs are probably the main drivers for compulsory iXBRL filing. Revenue will have the capability to perform instant analysis of high-value data using their existing computer systems.

Revenue’s computers will be able to immediately scan and record corporate tax values. This data can then be compared with thousands of other taxpayers’ data enabling the tax authorities to compare and contrast similar sized and structured entities relatively easily. This is done while effectively transferring the reporting and data preparation work to taxpayers at the same time, which is quite a neat trick!

Areas to watch out for

Underestimation of recourses needed

It is currently estimated that tagging a set of financial statements can take from between a few hours to a day and a half to complete (depending upon the complexity of the accounts). In an environment where a company’s finance and tax functions are often already working at maximum capacity, the time needed to correctly prepare a set of iXBRL financial statements may not be available. It is important that resource constraints do not result in a compromise on quality.

For reasons explained below, we recommend that tagging should be done by a qualified accountant. While someone with a non accounting IT background may be familiar with the concepts behind iXBRL it is unlikely that they would have the accounting knowledge to ensure that the correct tag is selected.

Choosing an incorrect tag

Typically we find that clients initially underestimated the difficulties associated with iXBRL. This is primarily because it seems, at first inspection, to be a simple process requiring no technical skills. In fact, while the physical process of tagging can be mastered very quickly, there is also a real skill in being able to select the correct tags for the correct items on the face of your accounts.

Revenue opted for iXBRL over pure XBRL because it provides more flexibility. In XBRL (which is used in the US primarily) every taxpayer is required to extend their taxonomy so that each and every item on the face of their accounts can be tagged. With iXBRL the expectation is that a maximum of 70%–80% of items on a set of financial statements can and should be tagged.

The 20%–30% of items left untagged are still readable by Revenue upon submission, so no information is lost in the process. iXBRL tagging is quicker and less technically difficult than pure XBRL, meaning it can be used more widely by taxpayers too.

The downside to this approach is that while certain tags are obvious, others are less so. To be “best effort compliant” a tagger needs to know when to tag an item, what tag is most appropriate and when to have confidence that there is no appropriate tag available at all. We recommend that a qualified accountant should perform the tagging as anyone else will invariably struggle to select the correct tag for the correct item on the face of a set of financial statements and it is important to get the tagging right! Interestingly HMRC previously released a statement noting that partial or inaccurate tagging makes it more likely that a return will be selected for detailed risk analysis leading to a compliance check.

Common tagging errors

It is important that the correct information is tagged with the correct tag. With over 12,000 tags in the IFRS taxonomy this can prove easier said than done! Some of the obvious tagging errors include:

• tagging monetary tags as text;
• getting the scale wrong on a monetary tag;
• using the wrong time period for a tag:
• attaching the wrong currency to a number;
• incorrect use of the negation principal;
• failing to tag one of the Business Mandatory Tags.

What are the possible next steps in an ixbrl environment?

Removal of “soft landing” approach

Recognising that the move to iXBRL will be a significant change for some taxpayers, Revenue have indicated that where a taxpayer has made reasonable efforts to comply with their obligations, late filing surcharges or other penalties in respect of errors in the creation or filing of iXBRL tagged financial statements will not be imposed. They have indicated that this “soft landing” approach will last for a period of approximately 2 years following mandation. This concession relates to iXBRL filing difficulties only and does not in any way constitute a change to the normal surcharge and penalty regime.

Extension of what has to be tagged

Currently it is only corporate taxpayers that are within the scope of mandatory filing of iXBRL financial statements. A natural progression would be to expand mandatory filing to non corporate taxpayers.

In the UK, there is a requirement to file an iXBRL corporation tax computation as well as iXBRL financial statements. Again, it should be expected that the use of iXBRL will be increased and that Revenue is likely to require mandatory filing of a company’s corporation tax computation in iXBRL format.

Use of iXBRL

iXBRL is potentially a great provider of information. As its use increases and more information is provided in an XBRL format it will facilitate better analysis of this information. As already mentioned above Revenue will have the capability to perform instant analysis of high-value data using their existing computer systems.

There is an expectation that the provision of financial information and the use of XBRL will increasingly become more intertwined. XBRL reporting is already widely used in the US by the SEC who, in 2009, issued a mandate that entities provide financial statement information in XBRL format.

Summary

With the introduction of mandatory filing of iXBRL financial statements well underway, it is best to plan in advance and not to leave implementing an iXBRL production process to the last minute. Clients who are reacting quickly are finding the overall process far less onerous than the clients who ignore the issue until the last minute. iXBRL filing requires a joined up approach from both the tax and accounts departments and getting a process in place to ensure the smooth delivery of tagged accounts.

Regardless of whether you are tagging your own accounts in-house or outsourcing the work to an iXBRL vendor to tag for you, you need to give whoever tags the accounts sufficient time to do so. iXBRL tagging can be a technically challenging discipline. Reviewing tagged accounts will help ensure consistency in your tag choice and eradicate the opportunity for unnecessary errors.

Early planning may allow companies to file tax returns “early” and defer iXBRL mandatory filing for one year. Also, a careful review of the structure of companies within a group may identify dormant or nearly dormant companies which may be exempt from iXBRL conversion requirements, subject to Revenue approval.

Jon D’Arcy is the Lead iXBRL Partner for KPMG email jon.darcy@kpmg.ie

Karen Carthy is a Tax Director with KPMG email karen.carthy@kpmg.ie

Appendix I

Commencement date	Who
23 Nov 2012	Voluntary for all corporation tax payers
1 Jan 2013	Voluntary for all income tax payers
1 Oct 2013	Mandatory for customers of Revenue’s Large Cases Division (LCD) (except S.110 securitisation special purpose vehicles) filing corporation tax returns on or after 1 Oct 2013; and with respect to accounting periods ending on or after 31 Dec 2012.
1 May 2014	Mandatory for Revenue’s Large Cases Division S.110 securitisation special purpose vehicles customers filing corporation tax returns: on or after 1 May 2014; and with respect to accounting periods ending on or after 31 July 2013.
1 Oct 2014	Mandatory for all non-LCD Revenue customers filing corporation tax returns, except those meeting iXBRL exemption criteria: on or after 1 Oct 2014; and with respect to accounting periods ending on or after 31 Dec 2013. iXBRL exemption criteria To be excluded, a company must meet all three of the following criteria:- The balance sheet value of the company does not exceed €4.4 million; The amount of the turnover of the company does not exceed €8.8 million; and The average number of persons employed by the company does not exceed 50.
2015	It is intended that all remaining corporation tax payers will be included in the next phase which will commence in 2015.