Accounting for BEPS Pillar Two income taxes before IAS 12 is amended

It is acceptable to conclude that not accounting for deferred Pillar Two income taxes is the most relevant and reliable accounting policy.

In January 2023, the International Accounting Standards Board (the IASB or the Board) issued an Exposure Draft ED/2023/1 International Tax Reform Pillar Two Model Rules (the ED), which proposed to clarify the application of IAS 12 Income Taxes to income taxes arising from tax law enacted or substantively enacted to implement the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Pillar Two model rules (Pillar Two income taxes). The ED proposed a mandatory temporary exception from accounting for deferred taxes in respect of Pillar Two income taxes and proposed certain additional disclosure requirements.

Entities that need to prepare IFRS annual or interim financial statements before the IAS 12 amendments are published (or endorsed in their jurisdiction), will need to develop an accounting policy to account for Pillar Two income taxes.

Entities should get ready to provide the additional disclosures required by the amendments to IAS 12, which will require that an entity disclose information that helps users of financial statements understand the entity’s exposure to Pillar Two income taxes.