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. 

Changes

The amendments in International Tax Reform — Pillar Two Model Rules (Amendments to the 'IFRS for SMEs' Standard):

• introduce 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 discloses that it has applied the exception;
• clarify that ‘other events’ in the disclosure objective in section 29 of the standard include enacted or substantively enacted tax rates and tax laws, such as pillar two legislation;
• require an SME to disclose separately its current tax expense (income) related to pillar two income taxes when pillar two legislation is in effect.

Effective date and transition

An SME applies the exception immediately upon issuance of the amendments retrospectively (and discloses immediately that it has done so) and the requirement to disclose separately its current tax expense (income) related to pillar two income taxes for annual reporting periods beginning on or after 1 January 2023.

Additional information

Please click for:

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