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How OECD Pillar Two rules affect companies and their IFRS reporting

In the largest international tax reform in nearly a century, the new GloBE rules address growing global and digital economies.

In brief
  • The GloBE rules, affecting MNEs, are a key component of the OECD Pillar Two model rules.
  • Companies will need to follow legislation in multiple jurisdictions as the rules are enacted in the coming years.
  • The IASB has proposed an amendment for a temporary exception to the accounting for deferred taxes related to the rules.

Following the release of the Pillar Two model rules by the Organisation for Economic Co-operation and Development (OECD) in late 2021, more than 130 countries and jurisdictions under the OECD/G20 Inclusive Framework are working on the largest reform on the international tax system in nearly a century to address the tax challenges arising from economic globalization and digitalization.

The implications of the Pillar Two model rules

The Global Anti-Base Erosion (GloBE) rules, a key component of the Pillar Two model rules, will introduce a 15% global minimum corporate tax rate for multinational enterprises (MNEs) with revenue above EUR750 million. The GloBE rules apply a system of top-up taxes that brings the total amount of taxes paid on an MNE’s excess profit in a jurisdiction up to the minimum rate. Rather than a typical direct tax on income, the tax imposed under the GloBE rules is closer in design to an international alternative minimum tax, which uses standardized base and tax calculation mechanics to identify pools of low-taxed income within a company and imposes a coordinated tax charge that brings the company’s effective tax rate on that income in each jurisdiction up to the minimum rate.



The GloBE rules will introduce a 15% global minimum corporate tax rate

for MNEs with revenue above EUR750 million.



Implementing Pillar Two model rules require legislating new tax laws in each jurisdiction in the coming years. Companies that meet the definition of MNEs under the rules need to monitor the substantive enactment of such laws in each jurisdiction, which may introduce additional local requirements. How and when each jurisdiction substantively enacts such laws will affect the timing of recognition, measurement of the top-up tax and, in particular, the identification of the entities in the MNE group that are legally subject to the additional tax liability.


Proposed amendments to tax accounting requirements

Stakeholders have raised concerns about the potential implications for income tax accounting resulting from implementing the rules in a short period, especially the uncertainty over the accounting for deferred taxes. They urgently want clarity before tax laws are enacted to implement the rules in some jurisdictions.



In January 2023, the IASB published an exposure draft introducing a temporary

exception to accounting for deferred taxes arising from the implementation of the

Pillar Two model rules.


In January 2023, the International Accounting Standards Board (the Board) published an exposure draft to amend IAS 12 Income Taxes to introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the rules and targeted disclosure requirements. The comment period ended on 10 March 2023, and there was overwhelming support from stakeholders for the temporary exception. Based on the current timeline, the amendment is expected to be finalized in the next few months.

To the extent the Board’s proposal is finalized such that deferred taxes are not recognized for the effect of the rules, companies will still need to account for the effect on current taxes and provide appropriate disclosures in their IFRS financial statements.

IFRS technical resources

IFRS technical resources has all the technical content, guidance and tools from EY financial reporting professionals. 


Given the complexity of the Pillar Two model rules, which involve legislative procedures in many jurisdictions, it will be important for companies to undertake detailed assessments of the relevant tax laws and establish and maintain effective internal controls over financial reporting arising from them.

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