IASB issues accounting paper on BEPS Pillar Two

BEPS Pillar Two - Global minimum top-up tax - Potential exception to deferred tax accounting.

Potential exception to deferred tax accounting

In an important development for IFRS reporters, the International Accounting Standards Board (IASB) has issued a staff paper and discussed concerns about the application of IAS 12 to top-up tax at its November 2022 meeting. The IASB agreed to undertake urgent narrow-scope standard-setting, which would provide a temporary exception from deferred tax accounting for top-up tax and require companies to provide new disclosures to compensate for the potential loss of information resulting from the temporary exception. The IASB aims to publish an Exposure Draft in January 2023 and, subject to the comments received, issue final amendments to IAS 12 during the second quarter of 2023. These do not apply until finally issued.

As jurisdictions prepare to amend their local tax laws to introduce the global minimum top-up tax (‘GloBE’) and reach the point of ‘substantive enactment’, stakeholders are questioning how they will account for those changes under IFRS Accounting Standards. The UK is expected to substantively enact the rules in 2023 to apply from 1 January 2024.

You can read more on these proposals in commentary from KPMG International’s International Standards Group (ISG). As mentioned, these proposed IAS 12 amendments should not be applied to 31 December 2022 reporting dates, when reporters are still strongly encouraged to consider disclosure of qualitative information if they expect GloBE to affect them - see KPMG ISG’s commentary on the current pre-amendment position.

The IAS 12 amendment proposals can be summarised as follows:-

Deferred tax exemption

Companies would effectively be exempt from providing for deferred tax related to top-up tax taxes arising from legislation enacted to implement the OECD Pillar 2 model rules (including any qualifying domestic minimum top up tax). When the final amendments are issued, the exception would apply immediately and until such time as the IASB decides either to remove it or to make it permanent.


However, a company may be required to disclose the following information in its annual financial statements for periods beginning after 1 January 2023:

  • Whether it expects to be in the scope of the applicable GloBE model rules;
  • Information about the related legislation enacted (substantively enacted) to implement GloBE model rules in jurisdictions in which the company operates;
  • Whether it operates in jurisdictions where: it reasonably expects to be ‘low-tax’ based on the specific GloBE model rules or, as an alternative, its effective tax rate for the current period determined under IAS 12 is below 15 percent;
  • For all low-tax jurisdictions (in aggregate), information about profit before tax, income tax expense and weighted-average effective tax rate; and
  • Once top-up tax is effective for the reporter, current tax expense related to top-up tax.

The IASB is expected to seek feedback from stakeholders on the extent of disclosure required.

Next steps

The focus on BEPS Pillar 2 GloBE is expected to increase further as jurisdictions enact legislation through 2023 and KPMG is working extensively with groups, including impact assessment, tax reporting, data and compliance, and transformation implications.

On these IAS 12 amendment proposals, rapid developments are expected. The IASB aims to publish an exposure draft with a 60-day comment period in January 2023 and, subject to the comments received, issue final amendments to IAS 12 during the second quarter of 2023.