International Tax Reform—Pillar Two Model Rules

The IASB discussed the potential effects of the OECD’s Pillar Two model rules on the accounting for income taxes by an entity applying IAS 12 Income Taxes. In particular, the IASB considered whether to undertake a standard-setting project in response to the imminent implementation of the rules.

The IASB tentatively decided to amend IAS 12 to introduce a temporary exception from the requirement to account for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules (including any qualified domestic minimum top-up tax). The exception would apply until the IASB either removes the exception or makes it permanent.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to amend IAS 12 to require an entity to disclose, in periods before the Pillar Two model rules are in effect, and for the current period only:

1. information about legislation enacted—or substantively enacted—to implement the Pillar Two model rules in jurisdictions in which the entity operates. All 11 IASB members agreed with this decision.
2. either:
   1. whether the entity operates in jurisdictions in which it reasonably expects to be taxed below the minimum rate in accordance with the specific requirements of the Pillar Two model rules; or
   2. whether the entity operates in jurisdictions in which its effective tax rate—calculated based on IAS 12 requirements—is below 15% for the current period.
      Nine of 11 IASB members agreed with this decision.
3. the jurisdictions in which the entity’s effective tax rate—calculated based on IAS 12 requirements—for the current period is below 15%.
   Eight of 11 IASB members agreed with this decision. The entity would also disclose, for these jurisdictions in aggregate:
   1. the accounting profit before tax;
   2. the income tax expense; and
   3. the resulting weighted-average effective tax rate.
      The entity would prepare this information by disaggregating information disclosed in the reconciliation required by paragraph 81(c) of IAS 12.
      Nine of 11 IASB members agreed with this decision.
4. whether the work it has already done in preparing to comply with the Pillar Two model rules indicates that there are jurisdictions in relation to which the entity:
   1. might be exposed to paying top-up tax and that are not included in the jurisdictions identified in (c); or
   2. might not be exposed to paying top-up tax and that are included in the jurisdictions identified in (c).
      Ten of 11 IASB members agreed with this decision.

The IASB also tentatively decided to amend IAS 12 to require an entity to disclose:

1. that it has applied the temporary exception; and
2. its current tax expense related to Pillar Two top-up tax.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to require an entity to apply:

1. the proposed amendments to introduce the temporary exception, and to require an entity to disclose the fact that it has applied that exception, immediately upon the issue of the amendments; and
2. the remaining proposed disclosure requirements for annual reporting periods beginning on 1 January 2023.

Eight of 11 IASB members agreed with these decisions.

The IASB tentatively decided to allow a comment period of 60 days for the exposure draft on its proposed amendments to IAS 12 (subject to approval by the Due Process Oversight Committee).

All 11 IASB members agreed with this decision.

All 11 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting an exposure draft.

No IASB member indicated an intention to dissent from publishing an exposure draft.