Indian Accounting Standards (Ind AS) are based on the IFRS Standards issued by the International Accounting Standards Board (IASB).
In this regard, it may be noted that IFRS
Standards are being issued/revised by the IASB from time to time. As a part of
convergence with IFRS Standards, the Ind AS may be issued/revised corresponding
to the IFRS Standards. Accordingly, whenever any amendments are made or new
IFRS Standard/IFRIC is issued by the IASB, the Accounting Standards Board (ASB)
of the ICAI considers those amendments and other related aspects for amending
the corresponding Ind AS.
In this regard, the Accounting Standards
Board has issued Exposure Draft of International Tax Reform—Pillar Two Model
Rules – Amendments to Ind AS 12 corresponding to Amendments to IAS 12 issued by
the IASB.
The draft amendments to Ind AS 12 aim to
provide temporary relief from requirements to recognise and disclose
information about deferred tax assets and liabilities arising from Pillar Two
model rules published by the Organisation for Economic Co-operation and
Development (OECD).
Below is the amendments to IAS 12 :
On 23 May 2023, the International
Accounting Standards Board (the IASB or Board) issued International Tax
Reform—Pillar Two Model Rules – Amendments to IAS 12 (the Amendments) 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).
What
is Pillar 2:
Pillar
2 arose out of the Organisation for Economic Co-operation and Development
(OECD) Base Erosion and Profit Shifting (BEPS) project and aims to end the
‘race to the bottom’ on tax rates by ensuring that multinationals pay a minimum
effective corporate tax rate (of 15% regardless of the local tax rate or tax
base).
In
March 2022, the OECD released technical guidance on its 15% global minimum tax
agreed as the second ‘pillar’ of a project to address the tax challenges
arising from digitalisation of the economy. This guidance elaborates on the
application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed
and released in December 2021 which lay out a co-ordinated system to ensure
that multinational enterprises with revenues above €750 million pay tax of at
least 15% on the income arising in each of the jurisdictions in which they
operate.
The
IASB decided to respond to stakeholders’ concerns about the potential
implications of the imminent implementation of these rules on the accounting
for income taxes by jurisdictions. In particular, the IASB noted that the
situation is very complicated as:
· jurisdictions may
change statutory tax rates to avoid being considered a low-tax environment;
· companies might
decide to move their business to jurisdictions with higher statutory tax rates;
and
· companies might
engage in business that comes with tax incentives that might bring down their
statutory tax rate to below 15% although the jurisdiction they are doing
business in is not generally considered a low-tax environment.
All
of these and further considerations would entail most complicated calculations
of deferred tax in a situation that is highly volatile due to the fact that
jurisdictions implement the OECD rules at different speed and different points
of time. Due to the many unknown variables involved, the IASB has decided to
develop a mandatory exemption until the global tax system has settled and
reestablished itself and the IASB can thoroughly assess the situation and
provide a reliable solution.
Changes to IAS 12:
The amendments in International Tax Reform
— Pillar Two Model Rules (Amendments to IAS 12) are:
1.
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 income taxes. An entity has to disclose that it has
applied the exception.
2.
A
disclosure requirement that an entity has to disclose separately its current
tax expense (income) related to pillar two income taxes.
3.
A
disclosure requirement that state that in periods in which pillar two
legislation is enacted or substantively enacted, but not yet in effect, an
entity discloses known or reasonably estimable information that helps users of
financial statements understand the entity’s exposure to pillar two income
taxes arising from that legislation.
4.
The
requirement that an entity applies the exception and the requirement to
disclose that it has applied the exception immediately upon issuance of the
amendments and retrospectively in accordance with IAS 8. The remaining
disclosure requirements are required for annual reporting periods beginning on
or after 1 January 2023.
The IASB will continue to monitor
developments related to the implementation of the pillar two model rules. It
plans to undertake further work to determine whether to remove the temporary
exception — or to make it permanent — after there is sufficient clarity about
how jurisdictions implemented the rules and the related effects on entities.
The mandatory temporary exception –applies
immediately.
The remaining disclosure requirements
apply for annual reporting periods beginning on or after 1 January 2023, but
not for any interim periods ending on or before 31 December 2023.
Entities need to monitor the developments
around the implementation and (substantive) enactment of the Pillar Two model
rules in the relevant jurisdictions and should get ready to provide the
disclosures required by the amendments to IAS 12.
Exposure draft issued based on the above
IAS 12.
The draft amendments to Ind AS 12 aim to
provide temporary relief from requirements to recognise and disclose
information about deferred tax assets and liabilities arising from Pillar Two
model rules published by the Organisation for Economic Co-operation and
Development (OECD).
Below is the amendment in IND AS 12
This Standard applies to income taxes
arising from tax law enacted or substantively enacted to implement the Pillar
Two model rules published by the Organisation for Economic Co-operation and
Development (OECD), including tax law that
implements qualified domestic minimum top-up taxes described in those rules.
Such tax law, and the income taxes arising from it, are hereafter referred to
as ‘Pillar Two legislation’ and ‘Pillar
Two income taxes’. As an exception to the requirements in this Standard, an
entity shall neither recognise nor disclose information about deferred tax
assets and liabilities related to Pillar Two income taxes
Below are the disclosure requirements as
per draft IND AS 12:
Disclosure
International tax reform—Pillar Two model rules
88A An entity shall disclose that it has
applied the exception to recognising and disclosing information about deferred
tax assets and liabilities related to Pillar Two income taxes (see
paragraph 4A).
88B An entity shall disclose separately
its current tax expense (income) related to Pillar Two income taxes.
88C In periods in which Pillar Two
legislation is enacted or substantively enacted but not yet in effect, an
entity shall disclose known or reasonably estimable information that helps
users of
financial statements understand the
entity’s exposure to Pillar Two income taxes arising from that legislation.
88D To meet the disclosure objective in
paragraph 88C, an entity shall disclose qualitative and quantitative
information about its exposure to Pillar Two income taxes at the end of the
reporting period. Thisinformation does not have to reflect all the specific
requirements of the Pillar Two legislation and can be provided in the form of
an indicative range. To the extent information is not known or
reasonablyestimable, an entity shall instead disclose a statement to that
effect and disclose information about the entity’s progress in assessing its
exposure.
Examples illustrating paragraphs 88C–88D
Examples of information an entity could
disclose to meet the objective and requirements in paragraphs 88C–88D include:
(a) qualitative information such as
information about how an entity is affected by Pillar Two legislation and the
main jurisdictions in which exposures to Pillar Two income taxes might
exist; and
(b) quantitative information such as:
(i) an indication of the proportion of an
entity’s profits that might be subject to Pillar Two income taxes and the
average effective tax rate applicable to those profits; or
Examples illustrating paragraphs 88C–88D
(ii) an indication of how the entity’s
average effective tax rate would have changed if Pillar Two legislation had
been in effect.
Effective date
98M International Tax Reform—Pillar Two
Model Rules, added paragraphs 4A and 88A–88D. An entity shall:
(a) apply paragraphs 4A and 88A
immediately upon the issue of these amendments and retrospectively in
accordance with Ind AS 8; and
(b) apply paragraphs 88B–88D for annual
reporting periods beginning on or after 1 April 2023. An entity is not
required to disclose the information required by these paragraphs for any
interim period ending on or before 31 March 2024.
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