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In December 2021, the Organisation for Economic Co-operation and Development (OECD) published Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS (the Rules). The Rules were introduced with the objective to address the tax challenges arising from the digitisation of economy by ensuring that large multinational groups27The minimum tax rate of 15 per cent would be applicable to multinational groups having consolidated revenues of EUR 750 million or more in at least two of the preceding four years. pay a minimum amount of tax (i.e., 15 per cent) on income arising in each jurisdiction in which they operate.

Over time, various concerns were raised by the stakeholders regarding the potential implications of the Rules. In particular, uncertainty over the accounting for deferred taxes arising from the Rules was identified as a key challenge area. Thus, in order to address these concerns, the International Accounting Standards Board (IASB), on 9 January 2023, issued an Exposure Draft (ED),International Tax Reform – Pillar Two Model Rules (Proposed amendments to IAS 12). The ED proposed certain amendments to the International Accounting Standard (IAS) 12, Income Taxes. These include:

  1. Temporary exception to the accounting for deferred taxes arising from the implementation of the Rules: The ED proposes that an entity should not recognise or disclose information about deferred tax assets and liabilities arising from the implementation of the Rules. However, the entity should disclose the fact that it has applied this exception.
    The proposed exception28It is mandatory for the companies to apply this temporary exception. would be effective immediately upon issuance of the amendments and retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
  2. Targeted disclosure requirements: The ED has also provided certain disclosure requirements for an entity in the periods in which the Rules are enacted or substantively enacted but are not yet in effect. These would be effective for the annual reporting periods beginning on or after 1 January 2023

The ED is open for comments up to 10 March 2023.

To access the text of the ED, please click here

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