In December 2021, the Organisation for Economic Co-operation and Development (OECD) published its Pillar Two model rules. The rules are part of a two-pillar solution to address the tax challenges arising from the digitalisation of the economy and were agreed by more than 135 countries and jurisdictions representing more than 90% of global GDP.
The Pillar Two model rules:
(a) aim to ensure that large multinational groups pay a minimum amount of tax on income arising in each jurisdiction in which they operate; and
(b) would achieve that aim by applying a system of top-up taxes that results in the total amount of taxes payable on excess profit in each jurisdiction representing at least the minimum rate of 15%.
Stakeholders informed the International Accounting Standards Board (IASB) of concerns about the potential implications for income tax accounting resulting from jurisdictions implementing the Pillar Two model rules. In particular, stakeholders were concerned about the uncertainty over the accounting for deferred taxes arising from the rules and said there was an urgent need for clarity in the light of the imminent enactment of tax law to implement the rules in some jurisdictions.
The proposals in this Exposure Draft would introduce:
(a) a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules; and
(b) targeted disclosure requirements.
The IASB expects the proposed amendments to provide timely relief for affected entities and avoid inconsistent interpretations of IAS 12 Income Taxes developing in practice. The proposed amendments would also require an entity to provide specific information to users of financial statements before and after the Pillar Two model rules are in effect.
The IASB will consider the comments it receives on the Exposure Draft and will decide whether to proceed with the proposed amendments. The IASB plans to complete any resulting amendments in the second quarter of 2023.
IASB Exposure Draft IAS 12 International Tax Reform Pillar Two.pdf