Pillar Two: exception and disclosures

Learning objectives

• Explain the mandatory exception: neither recognition of, nor disclosure about, deferred tax related to Pillar Two.L2
• Identify the Pillar Two disclosures required (application of the exception, separate current tax, exposure before the legislation takes effect).L2, L3
• Recognise a Pillar Two top-up tax as current tax, without deferred tax.L3

Normative references

• IAS 12 §4AThe standard applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the OECD, including qualified domestic minimum top-up taxes. As an exception, the entity neither recognises nor discloses information about deferred tax assets and liabilities related to Pillar Two income taxes.
• IAS 12 §88AThe entity discloses that it has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.
• IAS 12 §88BThe entity discloses separately its current tax expense (income) related to Pillar Two income taxes.
• IAS 12 §88CIn periods in which Pillar Two legislation is enacted or substantively enacted but not yet in effect, the entity discloses known or reasonably estimable information that helps users understand its exposure to Pillar Two income taxes arising from that legislation.
• IAS 12 §88DTo meet that objective, the entity discloses qualitative and quantitative information about its exposure at the end of the reporting period; this information need not reflect all the specific requirements of the legislation and may take the form of an indicative range; if information is not known or reasonably estimable, the entity discloses a statement to that effect and information about its progress in assessing its exposure.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

15 questions

• IAS 12 applies to income taxes arising from tax law enacted or substantively enacted to implement the OECD Pillar Two model rules, including qualified domestic minimum top-up taxes.L2
• The Gernasse group must recognise a deferred tax liability for the Pillar Two top-up tax it expects to pay on the future profits of a low-taxed subsidiary.L2
• The entity discloses in its notes that it has applied the exception to recognising and disclosing information about deferred taxes related to Pillar Two.L2
• In a period in which Pillar Two legislation is enacted but not yet in effect, the entity discloses known or reasonably estimable information that helps users understand its exposure to those taxes.L3
• Information about Pillar Two exposure before the effective date must reflect all the specific requirements of the legislation and cannot take the form of a range.L3
• Where and how does the Hollivane group present the Pillar Two top-up tax due for the year?L2
• What is the scope of the exception provided by IAS 12 for Pillar Two income taxes?L2
• The Isparo group, affected by Pillar Two legislation enacted but not yet in effect, has no known or reasonably estimable information about its exposure at the reporting date. What does it do?L3
• The Jorvella group is subject in 20X5 to Pillar Two legislation in effect. Which of these disclosures does it provide?L2
• Before the effective date of enacted Pillar Two legislation, what forms may the information about the Kervadin group's exposure take?L3
• Pillar Two legislation is in effect in 20X5 for the Lumbrac group. The top-up tax computation, made under that legislation (outside IAS 12, case data), results in {top_up_tax} payable by the parent for the year. Record the year-end entry.L3
• The Norvaline group's subsidiary Mercadine is taxed in a country that has introduced a qualified domestic minimum top-up tax, in effect in 20X5; the amount payable by the subsidiary for 20X5, computed under that legislation (case data), is {domestic_top_up_tax}. Record the entry in the subsidiary's financial statements.L3
• At 31 December 20X5, the Pillar Two legislation of the country of Orsavel, the parent, is enacted and will take effect on 1 January 20X6. Preliminary analyses (case data) indicate that one subsidiary would be low-taxed, with top-up tax estimated at between 0.8 and 1.2 million. What does Orsavel do in its 20X5 financial statements?L3
• In 20X6, the first year of application of Pillar Two legislation, the Pruvenza group owes top-up tax of 210,000 (case data); its teams also flag differences between carrying amounts and the bases used by the Pillar Two rules, which would produce future top-up tax. Which treatment applies?L3
• The country of the subsidiary Quorvane has adopted a qualified domestic minimum top-up tax implementing the Pillar Two rules. The finance director proposes treating it as a levy outside IAS 12, on the grounds that it is computed under its own rules. What is the right view?L2