Background

In April 2023 the Financial Reporting Council (FRC) published Financial Reporting Exposure Draft (FRED) 83 'Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 101 Reduced Disclosure Framework – International tax reform – Pillar Two model rules' ("FRED 83") which proposed to introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules, alongside targeted disclosure requirements.

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. The Pillar Two model rules:

• aim to ensure that large multinational groups pay a minimum amount of tax on income arising in each jurisdiction in which they operate; and
• 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%.

The International Accounting Standards Board (IASB) issued Exposure Draft IASB/ED/2023/1 International Tax Reform—Pillar Two Model Rules – Proposed amendments to IAS 12 in January 2023.  The proposals in that Exposure Draft would introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules, alongside targeted disclosure requirements

The FRC considered whether similar proposals were required in relation to Section 29 Income Tax of FRS 102 and developed FRED 83 which was based upon the IASB's proposals.

The FRC also considered whether to provide disclosure exemptions for qualifying entities, as defined in FRS 102 or FRS 101.  The proposals in FRED 83 would introduce an exemption for qualifying entities from certain proposed disclosures that are primarily relevant to the consolidated financial statements of a group, provided that equivalent disclosures are included in the consolidated financial statements in which the qualifying entity is included.

In deciding whether to proceed with the proposed amendments the FRC would take into consideration:

• further statements made by the UK and Irish governments about the approaches taken to incorporate the Pillar Two model rules into domestic legislation;
• the comments it received on FRED 83; and
• the final amendments issued by the IASB in its project International Tax Reform—Pillar Two Model Rules.

Comments on FRED 83 were requested by 24 May 2023.

Status of the project

In July 2023, the FRC issued Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 101 Reduced Disclosure Framework – International tax reform – Pillar Two model rules.  The temporary exception introduced into FRS 102 applies immediately and retrospectively upon issue of the amendments. The effective date for the disclosure requirements is accounting periods beginning on or after 1 January 2023, with early application permitted