IASB amends IAS 12 to respond to the Pillar Two Tax Rules

The International Accounting Standards Board (IASB) has issued amendments to IAS 12 Income taxes to give entities temporary relief from accounting for deferred taxes arising from the Organisation for Economic Co-operation and Development’s (OECD) international tax reform. The amendments introduce both a temporary exception and some targeted disclosure requirements.

The OECD published its Pillar Two Model Rules in December 2021 to ensure that large multinational companies (i.e., groups with revenue of EUR 750 million or more in two of the last four years) would be subject to a minimum 15% tax rate. The reform is expected to apply in most jurisdictions for accounting periods starting on or after January 1, 2024.

However, while the reaction from jurisdictions around the world to implement the changes has been positive, there have been major stakeholder concerns about the uncertainty over the accounting for deferred taxes arising from the implementation of these rules.

Those concerns mainly refer to identifying and measuring deferred taxes because determining whether the Pillar Two Rules will create additional temporary differences is very difficult and also which tax rate will be applicable (considering the number of factors affecting its determination).

Therefore, the IASB has acted quickly to address these concerns and provide direction on what they expect entities to disclose.