BEPS Pillar 2 Minimum Tax: Tax accounting, state of play and next steps
IFRS IAS 12 amendment - Deferred tax exception and specified disclosures
IFRS IAS 12 amendment
As mentioned previously in Tax Matters Digest, the International Accounting Standards Board (IASB) is amending IAS 12 Income Taxes. The proposals for a Pillar Two IFRS deferred tax exception and specified disclosures continue to be advanced with welcome refinements to the disclosure proposals. The IASB plans to finalise the amendments by the end of May 2023. Following feedback from stakeholders, at the 11 April 2023 IASB meeting, the specified disclosures which were agreed to comprise a disclosure objective rather than a list of specific information.
- Revise its proposed approach for those disclosures to be provided before the new tax laws are in effect, shifting from:
- A list – to a disclosure objective with supporting guidance; and
- IAS 12-based information – to information based on Pillar Two laws.
The new disclosures would apply in annual financial statements for periods beginning on 1 January 2023; however, no disclosures would be required in interim periods before 31 December 2023.
Interim and year ends 30 June 2023
At 30 June 2023, the IAS12 amendment should be finalised by the IASB but, for UK groups, they are unlikely to have been endorsed by UK or EU Endorsement boards. If substantive enactment has occurred before 30 June 2023 but endorsement has not occurred, UK groups would be expected to be able to utilise the deferred tax exception through an accounting policy based on US GAAP interpretation as an alternative minimum tax (this accounting policy should be disclosed if the impact is significant).
For interim accounting periods, no specified disclosure is required but disclosure of the expected Pillar Two impact on the groups is recommended. Any disclosure would need to be supported by a Pillar Two impact assessment.
Similar FRS102 deferred tax exception
Also, on 5 April 2023, the Financial Reporting Council (FRC) published FRED 83 containing draft amendments to FRS 102 (the financial reporting standard applicable in the UK for entities that are not applying adopted IFRS, FRS 101 or FRS 105) similar to those proposed by the IASB. Although there are expected to be limited FRS102 consolidations within Pillar Two, this is nevertheless welcome news for single entity financial statements. Comments on FRED 83 are requested by 24 May 2023.
Although the specified disclosures may now appear less rigid, groups should continue to be prioritising:
- Impact assessments for completion during the year before Pillar Two applies to the group (e.g. during year ended 31 Dec 2023 for calendar year end groups) to support external financial statement disclosures and their assessment as to estimated future Pillar Two tax exposures; and
- Identifying and addressing data gaps to capture the required information in real-time, along with planning for their approach to real-time calculations, when Pillar Two applies to the group (e.g. from 1 January 2024).