24 November 2022 (Updated 9 January 2023)*

As jurisdictions prepare to amend their local tax laws to introduce the global minimum top-up tax (‘GloBE’)1, stakeholders are questioning how they will account for those changes under IFRS® Accounting Standards.

In particular, they are questioning whether top-up tax is in the scope of IAS 12 Income Taxes and, if so, how to account for its deferred tax impacts.

To address these concerns, the International Accounting Standards Board (IASB) proposes to amend IAS 12 to:

  • provide a temporary mandatory 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.

These amendments would provide a welcome relief from deferred tax accounting and allow companies to focus on assessing the potential current tax impacts of the global minimum top-up tax.

Irina Ipatova
Associate Partner, International Standards Group (ISG)
KPMG International

Challenges in accounting for top-up tax

Top-up tax differs from income taxes that arise under ‘traditional’ tax regimes. Traditional income taxes are generally based on a company’s taxable profit; top-up tax will arise only if a group pays an insufficient amount of income taxes at a jurisdictional level.

This has led to questions from stakeholders, such as the following.

  • Is top-up tax in the scope of IAS 12?
  • Do the GloBE model rules create additional temporary differences?
  • Does a company need to remeasure its existing temporary differences in relation to deferred tax recognised?
  • How will companies determine the rate for measuring the deferred tax impacts of top-up tax?

With some jurisdictions expected to implement the GloBE model rules as early as the first half of 2023, stakeholders are asking for urgent clarity.

Potential exception to deferred tax accounting

In response, the IASB proposes to amend IAS 12 to introduce a temporary mandatory exception from accounting for deferred tax that arises from legislation implementing the GloBE model rules2. Companies would effectively be exempt from providing for deferred tax related to 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. A company would be required to disclose that it has applied the exception.

Disclosures – Before and after top-up tax becomes effective

Further, the IASB proposes that a company provides new disclosures in its annual financial statements for periods beginning on 1 January 2023.

Once tax law is enacted but before top-up tax is effective

  • Information about legislation enacted (substantively enacted) to implement GloBE model rules in jurisdictions in which the company operates.
  • For low-tax jurisdictions where the average effective tax rate for the current period determined under IAS 12 (i.e. the tax expense divided by the profit before tax) is below 15 percent:
    • a list of those jurisdictions; and
    • in aggregate, information about profit before tax, income tax expense and weighted-average effective tax rate.
  • Whether, based on the work performed in preparing to comply with the GloBE model rules, there may be:
    • other jurisdictions where the company may be exposed to top-up tax; or
    • an indication of no top-up tax exposure in a current low-tax jurisdiction.

After top-up tax is effective

  • Current tax expense related to top-up tax.

These additional new disclosure requirements will apply once the amendments become effective (i.e. they do not affect 2022 annual reports). However, investors may expect disclosures about the potential impacts before then. The additional disclosures may be particularly relevant for group companies that expect to be liable for the top-up tax.

Actions for management to take now

  • Read our talkbook (PDF 540KB) for further details of the proposals and provide your input to the IASB by 10 March 2023**.
  • Continue to engage with tax specialists, assess the impacts and monitor the progress of implementation of GloBE model rules into relevant jurisdictions’ tax laws.
  • Engage with investors to determine the appropriate level of disclosures to provide now.
  • Ensure that you collect sufficiently detailed information to provide the proposed disclosures about your operations in low-tax jurisdictions.

GloBE – global anti-base erosion.

2 This would include any qualified domestic minimum top-up tax. 

Updated on the publication of the proposed amendments to IAS 12 on 9 January 2023.

** Read our comment letter (PDF 167KB).


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