Amendment to IAS 12 - International Tax Reform - Pillar two model rules

​On 9 January 2023 the IASB issued the Exposure Draft - International Tax Reform - Pillar Two Model Rules - Proposed amendments to IAS 12 Income Taxes ("the ED"). The proposals in the ED introduced a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules and targeted disclosure requirements. 

EFRAG draft and final comment letters

EFRAG published its Draft Comment Letter ('DCL') on the ED on 30 January 2023. 

In its DCL, EFRAG supported the IASB’s proposal to introduce a temporary exception to the requirements in IAS 12 to recognise and disclose information about deferred tax assets and liabilities arising from the Organisation for Economic Co-operation and Development's (OECD) Pillar Two Model Rules. However, EFRAG outlined that it would engage with its constituents during the outreach of the ED to ascertain the usefulness of the proposed targeted disclosures for users and to assess the feasibility (including costs) for preparers. EFRAG DCL's comment period ended on 27 February 2023.

Based on the feedback received from constituents in response to the DCL, EFRAG published its Final Comment Letter on 14 March 2023. 

In its letter, EFRAG welcomed the IASB’s efforts to address the concerns of stakeholders about the implications for income tax accounting resulting from jurisdictions implementing the Pillar Two model rules. EFRAG generally supported the IASB’s proposal to introduce the aforementioned temporary exception to the requirements in IAS 12. Furthermore, EFRAG supported the efforts of the IASB to define a disclosure approach that would provide information to the users to assess an entity’s exposure to paying top-up tax that would not involve undue cost or effort. However, EFRAG proposed some improvements on the proposed targeted disclosures and encouraged the IASB to add a disclosure objective that described the needs of users of financial statements as it might help entities to apply judgment. Lastly, EFRAG reminded the IASB of the urgent need of the proposed exception. 

On 2 June 2023, EFRAG published its Feedback Statement, which summarises the main comments received by EFRAG on its DCL and explains how those comments were considered by EFRAG during its technical discussions leading to the publication of EFRAG's Final Comment Letter. 

EFRAG's preparatory draft for its endorsement advice letter

EFRAG exceptionally prepared and published on 24 April 2023, before the publication of the final amendments, its preparatory draft for its Endorsement Advice letter​​ on ​International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12).  EFRAG's preliminary conclusion was that the Amendments would meet the technical criteria for endorsement and that the Amendments would be conducive to the European public good. The document was subject to public consultation until 24 May 2023.

Amendments

On 23 May 2023, the IASB published the Amendments to IAS 12 - International Tax Reform - Pillar Two Model Rules ("the Amendments"). The Amendments give companies temporary relief from accounting for deferred taxes arising from the OECD's international tax reform. The Amendments introduce:

• a temporary exception to the accounting for deferred taxes arising from jurisdictions implementing the global tax rules.
• targeted disclosure requirements to help users better understand a company's exposure to income taxes arising from the reform, particularly before legislation implementing the rules is in effect.