DOC 2023-10377

IASB Approves Temporary Pillar 2 Deferred Tax

Accounting Break
Posted on Apr. 12, 2023

By Stephanie Soong

(C) Tax Analysts 2023. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
The International Accounting Standards Board has voted in favor of giving companies temporary
relief from deferred tax accounting as countries start implementing global minimum tax rules
negotiated through the OECD framework.

IASB members approved amendments to International Accounting Standard 12, “Income Taxes,”
which applies to income taxes, including domestic and foreign taxes on taxable profits, during a
special April 11 meeting. The amendments also would require an in-scope company to disclose its
potential exposure to pillar 2 taxes in a relevant country before the tax rules take effect and disclose
its pillar 2 tax expenses after the rules take effect.

The IASB consulted on the proposed amendments from January 9 to March 10 in response to
stakeholder concerns about deferred tax accounting under the global anti-base-erosion (GLOBE)
rules set out in pillar 2 of the OECD’s international corporate tax reform plan.

All but four of the 142 members of the OECD’s inclusive framework on base erosion and profit
shifting had agreed in 2021 to implement the plan. Pillar 2 would ensure that large multinational
enterprises pay a minimum level of corporation tax in all jurisdictions in which they operate,
primarily through the GLOBE rules.

The GLOBE rules establish a framework for top-up taxation through which effective tax rates are
calculated and applied on a jurisdictional basis. MNEs with annual group revenue exceeding €750
million start with a standardized financial accounting base and use their income and taxes paid to
calculate their ETRs and identify the jurisdictions in which those rates are lower than 15 percent..

However, opinions were more divided on the amount of data that companies should disclose during
pillar 2 implementation, as proposed in the IASB’s discussion draft. IASB members voted in favor of a
technical staff recommendation for a revised disclosure approach for companies in jurisdictions that
have enacted pillar 2 legislation that hasn’t yet taken effect.

Under the revised approach, a company would be required to report information that would help
users of financial statements understand its exposure to pillar 2 income taxes under a relevant
country’s legislation. A company would also have to “disclose known or reasonably estimable
qualitative and quantitative information about its exposure at the end of the reporting period,”
according to a staff paper prepared for the meeting.

The IASB aims to publish final IAS 12 amendments by the end of May. The consultation exercise “has
enabled us to move quickly in a balanced way,” IASB Chair Andreas Barckow said in an April 11

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release. “We are confident that the final amendments will respond to our stakeholders’ urgent needs
that have arisen from the implementation of the OECD’s pillar 2 model rules.”

(C) Tax Analysts 2023. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.

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