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.