International Accounting Standard 12 (IAS 12)-Proposed Amendment issued by IASB 

A. Proposed Amendment

The International Accounting Standards Board (IASB) has published an exposure draft on Pillar Two Model Rules (Proposed Amendment to IAS 12) to address and respond to stakeholder’s concerns about the potential implications of the Organisation for Economic Co-operation and Development (OECD) on the accounting for income taxes.

B. Background

• Multinational enterprises with consolidated revenue above €750 million will pay tax of at least 15% on the income arising in each jurisdictions in which they operate.
• In relation to above, the OECD released technical guidance on its 15% global minimum tax as the second pillar of the project to address the tax challenges arising from digitalization of the economy.

C. Suggested Changes

IASB has proposed following amendments to IAS-12:

• The IASB proposes to provide an exception to the requirements in IAS 12 that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the ‘OECD Pillar Two Model Rules – Income Taxes’. An entity would disclose that it has applied the exception.
• The IASB proposes that an entity should disclose below information when Pillar Two legislation is enacted but not yet in effect:

• Information about such legislation enacted or substantively enacted where the entity operates;
• The jurisdictions in which the entity’s average effective tax rate is below 15%; and
• Whether there are jurisdictions where the entity expects either to pay pillar two income taxes although the 15% threshold does not apply or not to pay pillar two income taxes although the 15% threshold does apply.

The IASB proposes that an entity applies the exception immediately upon issuance of the amendments and retrospectively in accordance with IAS 8 and the disclosure requirements for annual reporting periods beginning on or after 1 January 2023.

SW Remarks:
In the aforementioned update, an effort has been made to provide an overview of the amendments proposed to be made by IASB to IAS 12. The exposure draft is open for comments till 10th March, 2023 at “ifrs.org”. The Accounting Standards Board (ASB) of ICAI has also invited comments on the consultative document issued by IASB till 16 February 2023 at “icai.org”.

Kriti Mehta, Audit Associate, SW India