Background

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 took up a maintenance project and released final amendments to IAS 12 to respond to stakeholders’ concerns about the potential implications of the imminent implementation of these rules on the accounting for income taxes.

Subsequently, the IASB came to the conclusion that the pillar two model rules (and the amendments to IAS 12) are also relevant to entities applying the IFRS for SMEs and added to its work plan a narrow-scope standard-setting project to amend Section 29 Income Tax of the IFRS for SMEs.

Suggested changes

The proposed amendments in exposure draft International Tax Reform — Pillar Two Model Rules (Proposed amendments to the 'IFRS for SMEs' Standard) are:

• The IASB proposes to provide a temporary exception to the requirements in the IFRS for SMEs that an SME does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes. An SME would disclose that it has applied the exception.
• The IASB proposes:
  • to clarify that ‘other events’ in the disclosure objective in section 29 of the standard include enacted or substantively enacted pillar two legislation;
  • not to introduce new disclosure requirements in periods when pillar two legislation is enacted or substantively enacted but not yet in effect; and
  • to require an SME to disclose separately its current tax expense (income) related to pillar two income taxes when pillar two legislation is in effect.
• The IASB proposes that an SME applies the exception immediately upon issuance of the amendments retrospectively (and discloses immediately that it has done so) and applies the other disclosure requirements for annual reporting periods beginning on or after 1 January 2023.

Comments on the proposed changes are requested by 17 July 2023.

Additional information

Please click for:

• IASB press release (link to IFRS Foundation website)
• Access to the exposure draft on the IFRS Foundation website
• Our iGAAP in Focus newsletter
• Our IAS Plus project page on IFRS for SMEs — OECD pillar two model rules