IASB publishes amendments to IAS 12 to provide a temporary exception to the requirements regarding deferred tax assets and liabilities related to pillar two income taxes

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23 May 2023

The International Accounting Standards Board (IASB) has published 'International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12)' to respond to stakeholders’ concerns about the potential implications of the imminent implementation of the OECD pillar two model rules on the accounting for income taxes.



In March 2022, the OECD released technical guidance on its 15% global minimum tax agreed as the second ‘pillar’ of a project to address the tax challenges arising from digitalisation of the economy. This guidance elaborates on the application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed and released in December 2021 which lay out a co-ordinated system to ensure that multinational enterprises with revenues above €750 million pay tax of at least 15% on the income arising in each of the jurisdictions in which they operate.

The IASB decided to respond to stakeholders’ concerns about the potential implications of the imminent implementation of these rules on the accounting for income taxes by jurisdictions. In particular, the IASB noted that the situation is very complicated as:

  • jurisdictions may change statutory tax rates to avoid being considered a low-tax environment;
  • companies might decide to move their business to jurisdictions with higher statutory tax rates; and
  • companies might engage in business that comes with tax incentives that might bring down their statutory tax rate to below 15% although the jurisdiction they are doing business in is not generally considered a low-tax environment.

All of these and further considerations would entail most complicated calculations of deferred tax in a situation that is highly volatile due to the fact that jurisdictions implement the OECD rules at different speed and different points of time. Due to the many unknown variables involved, the IASB has decided to develop a mandatory exemption until the global tax system has settled and reestablished itself and the IASB can thoroughly assess the situation and provide a reliable solution.



The amendments in International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12) are:

  • An exception to the requirements in IAS 12 that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes. An entity has to disclose that it has applied the exception.
  • A disclosure requirement that an entity has to disclose separately its current tax expense (income) related to pillar two income taxes.
  • A disclosure requirement that state that in periods in which pillar two legislation is enacted or substantively enacted, but not yet in effect, an entity discloses known or reasonably estimable information that helps users of financial statements understand the entity’s exposure to pillar two income taxes arising from that legislation.
  • The requirement that an entity applies the exception and the requirement to disclose that it has applied the exception immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after 1 January 2023.

The IASB will continue to monitor developments related to the implementation of the pillar two model rules. It plans to undertake further work to determine whether to remove the temporary exception — or to make it permanent — after there is sufficient clarity about how jurisdictions implemented the rules and the related effects on entities.

The IASB has also decided that the pillar two model rules (and the amendments to IAS 12) are relevant to entities applying the IFRS for SMEs. The IASB has added to its work plan a narrow-scope standard-setting project to amend Section 29 Income Tax of the IFRS for SMEs. An exposure draft is expected in June 2023.


Dissenting opinion

The final amendments contain a dissenting opinion as one Board member is concerned that these amendments will result in an entity disclosing less useful information to help users of financial statements assess the entity’s future cash flows.


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