Global minimum top-up tax
Relief from deferred tax accounting
(This article was published on 23 May 2023 and updated on 29 September 2023)
Highlights
As jurisdictions prepare to amend their local tax laws to introduce the global minimum top-up tax in line with the GloBE1聽model rules, stakeholders are questioning how to account for the changes under IFRS庐聽Accounting Standards.
In particular, they question whether top-up tax is in the scope of IAS 12听Income Taxes聽and, if so, how to account for its deferred tax impacts.
To address these concerns, the International Accounting Standards Board (IASB) has amended IAS 12 to:
- provide a temporary mandatory relief from deferred tax accounting for top-up tax; and
- require companies to provide new disclosures to compensate for the potential loss of information resulting from the relief.
Challenges in accounting for top-up tax
Top-up tax聽differs from income taxes that arise under 鈥榯raditional鈥� tax regimes. Traditional income taxes are generally based on a company鈥檚 taxable profit; top-up tax will arise only if a group pays insufficient income tax at a jurisdictional level.
This has led to questions from stakeholders, such as the following.
- Is top-up tax in the scope of IAS 12?
- Do the GloBE model rules create additional temporary differences?
- Do companies need to remeasure their existing temporary differences in relation to deferred tax recognised?
- How will companies determine the rate for measuring the deferred tax impacts of top-up tax?
With some jurisdictions expected to implement the GloBE model rules as early as the first half of 2023, stakeholders have asked for urgent clarity.
Mandatory relief from deferred tax accounting
In response, the IASB has amended IAS 12 to introduce a temporary mandatory relief from accounting for deferred tax that arises from legislation implementing the GloBE model rules2. Under the relief, companies are effectively exempt from providing for and disclosing deferred tax related to top-up tax. However, they need to disclose that they have applied the relief.
The relief is effective immediately and applies retrospectively in accordance with IAS 8聽Accounting Policies, Changes in Accounting Estimates and Errors. It will apply until the IASB decides either to remove it or to make it permanent.聽
New disclosures
Further, the IASB has introduced聽new disclosures, that companies are required to provide in their financial statements from 31 December 2023. No disclosures are required in interim periods ending on or before 31 December 2023.
Once tax law is enacted but before top-up tax is effective
The company is required to disclose information that is known or can be reasonably estimated and that helps users of its financial statements to understand its exposure to Pillar Two聽income taxes at the reporting date.
This information does not need to reflect all the specific requirements in the legislation 鈥� companies can provide an indicative range. Disclosures may include quantitative and qualitative information.
- Qualitative information: How the company is affected by Pillar Two taxes and in which jurisdictions the exposure arises 鈥� e.g. where the top-up tax is triggered and where it will need to be paid.聽
- Quantitative information: The proportion of profits that may be subject to Pillar Two income taxes and the average effective tax rate applicable to those profits, or how the average effective tax rate would have changed if Pillar Two legislation had been effective.
If information is not known or cannot be reasonably estimated at the聽reporting date, then a company discloses a statement to that effect and information about its progress in聽assessing the Pillar Two exposure.鈥�
After top-up tax is effective
Only one disclosure is required 鈥� i.e. current tax expense related to top-up tax.
These new disclosure requirements apply only to financial statements from 31 December 2023. However, investors may expect聽disclosures聽about the potential impacts before then, particularly from group companies that expect to be liable for the top-up tax.
Actions for management to take now
- Read our聽聽(PDF 592 KB)聽for further details of the amendments and our additional insights and聽our guide聽on Pillar Two taxes in 2023 reports.
- Continue to engage with tax specialists, assess the impacts and monitor the implementation of GloBE model rules into relevant jurisdictions鈥� tax laws.
- Engage with investors to determine the appropriate level of disclosures to provide now and in the future.
- Collect appropriate information to provide the new disclosures about your potential exposure to Pillar Two taxes.
Update (29 September 2023): The IASB has also published聽聽to Section 29聽Income Tax聽of the聽IFRS for SMEs聽Accounting Standard. They are similar to those made to IAS 12 under the full IFRS Accounting Standards, although the approach to disclosures about exposure to the top-up tax differs.
1聽GloBE 鈥� global anti-base erosion.
2听This includes any qualified domestic minimum top-up tax.聽
漏 2025 乐鱼（Leyu）体育官网 IFRG Limited, a UK company, limited by guarantee. All rights reserved.