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Companies Exempted from Accounting for Deferred Taxes that Stem from Global Tax Reform

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The International Accounting Standards Board (IASB) on May 23, 2023, published an amendment to a key income tax accounting standard that enables companies to avoid the reporting complexity that arises from implementing global tax reform laws.

The board amended International Accounting Standard (IAS) 12Income Taxes, to introduce a temporary and mandatory exemption to the accounting for deferred taxes arising from the implementation of Pillar Two model rules that were published by the Organisation for Economic Co-operation and Development (OECD) in December 2021.

Pillar Two model rules – also referred to as the “Anti Global Base Erosion” or “GloBE” rules – introduce international tax reform that subject large multinational companies to a minimum 15 percent tax rate on profits in all countries. More than 135 countries and jurisdictions representing more than 90 percent of global gross domestic product (GDP) have agreed to the Pillar Two model rules.

Under the accounting exemption, companies won’t recognize deferred tax assets and liabilities related to Pillar Two model rules, but they must provide specific disclosures so that investors can understand their exposure to the legislation. The exemption is in place for an unspecified period, the IASB said.

“These amendments respond to stakeholder feedback and will ensure that companies are supported during the implementation of the OECD’s rules, while enhancing the financial information provided to investors about how these companies are affected by the international tax reform,” IASB Chair Andreas Barckow said in a statement. “We are monitoring developments as jurisdictions implement the Pillar Two model rules,” he said. “A future maintenance project has been added to the pipeline in which we will revisit the temporary exception and related disclosures.”

The rules are immediately effective and disclosures must be provided for annual reporting periods beginning on or after Jan. 1, 2023. However, companies are exempted from providing the disclosures during interim periods within 2023.

In periods when legislation is enacted but not yet in effect, the amendments set out a disclosure objective that requires companies to disclose information to help users of financial statements to understand a company’s exposure to Pillar Two income taxes, according to text of the guidance. To meet that disclosure objective, the company must disclose known or “reasonably estimable” qualitative and quantitative information about its exposure at the end of the reporting period. To the extent information is not known or reasonably estimable, the company must disclose a statement to that effect.

In periods when the legislation is in effect, a company must separately disclose its current tax expense related to Pillar Two.

The IASB is the 14-member accounting body that develops International Financial Reporting Standards (IFRSs) for more than 140 jurisdictions worldwide.

The board developed the exemption after hearing from businesses that they were concerned about the implications for income tax accounting resulting from having to implement Pillar Two model rules within a short period of time.

Specifically, under IAS 12, businesses that are measuring deferred tax assets and liabilities must reflect tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Because some jurisdictions are expected to enact tax law to implement the Pillar Two model rules in the first half of 2023, accounting practitioners told the board that there is little time to resolve the uncertainties about how to apply IAS 12 to qualified domestic minimum top-up taxes described in those rules.

Moreover, practitioners said that without further clarification, a company might incur costs in developing and applying their own interpretations of the requirements in IAS 12, which could result in accounting differences among companies and thus, information that is potentially not useful for users of financial statements.


This article originally appeared in the May 24, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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