International Tax Reform — Pillar Two Model Rules

Date recorded:

Topic Potential amendment to the IFRS for SMEs Accounting Standard (Agenda Paper 14)

At its supplementary meeting in April 2023, the IASB discussed the feedback on the Exposure Draft International Tax Reform—Pillar Two Model Rules (ED) and decided to finalise amendments to IAS 12. The amendments will introduce:

  • A temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the global tax rules
  • Targeted disclosure requirements for affected companies to help users of the financial statements better understand a company’s exposure to Pillar Two income taxes arising from that legislation, particularly before the effective date of that legislation.

The staff’s outreach provides evidence that Pillar Two model rules could also have material effects on financial statements of some entities applying the IFRS for SMEs Accounting Standard.

The purpose of this paper was to:

  • Provide the staff’s analysis of the relevance of the proposed amendments to IAS 12 to entities applying the IFRS for SMEs Accounting Standard
  • Ask the IASB whether it agrees with the staff recommendation to undertake a narrow-scope standard-setting project to amend the IFRS for SMEs Accounting Standard outside the periodic review of the Accounting Standard

Staff recommendation

The staff recommended undertaking a narrow-scope standard-setting project to amend Section 29 Income Tax of the IFRS for SMEs Accounting Standard.

The staff also recommended asking the IFRS Foundation Due Process Oversight Committee (DPOC) to approve a 75-day comment period for the ED of proposed amendments to Section 29 of the IFRS for SMEs Accounting Standard.

IASB discussion

Many IASB members supported instigating a narrow-scope project on this topic as it is a concern to larger SMEs and needs to be addressed.

There was some discussion on how long the comment period should be. The Chair suggested a shorter comment period of 60 days as it would be larger SMEs who are expected to respond to the ED. Some IASB members said it could be an even shorter comment period, depending on how extensive the changes to the disclosure requirements will be, which will be discussed in the next meeting.

The Chair highlighted that the disclosure requirements in Section 29 of the IFRS for SMEs are different to the disclosure requirements in IAS 12. On the other hand, IASB members thought that larger conglomerates have already completed their thinking on the proposed IAS 12 amendment and while there may be certain aspects that are different for SMEs, the issues would be largely the same. It was suggested that the staff could ask the DPOC to approve a comment period of ‘no less than 45 days’ to have flexibility in that regard.

IASB decision

The staff suggested to vote only on whether the IASB wants to add this project to its standard-setting agenda and vote on the comment period after the discussion on the disclosure requirements was held during a supplementary meeting in the week following the April 2023 meeting.

All IASB members voted in favour of adding the project to the IASB’s standard-setting agenda.

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