IFRS provisionally simplified with regard to Pillar Two taks

Pillar Two Taks

The International Accounting Standards Board (IASB) anticipates challenges in applying IAS 12 Income Taxes with the introduction of Pillar Two tax. Consequently, recent adjustments have been made in this regard.

In 2021, 135 countries in the Economic Co-operation and Development’s (OECD) decided to adjust their tax legislation to achieve an effective minimum rate of 15 percent. This is called the Pillar Two Model: Global Minimum Taxation. This will apply for companies with a turnover of more than 750 million euros. If a group part pays less than 15% profit tax in a specified country, the difference will be charged equally to the group. Usually the group head, the so-called ‘top-up’.

Profit Taxation

Primarily, the Pillar Two Model is purely fiscal, but the tax burden is also reflected in the annual accounts. Under IFRS, the processing of profit taxes is regulated in IAS 12. One of the questions is whether this additional top-up tax is a profit tax. That seems like a trivial question, but worldwide there are all kinds of forms of tax that resemble a profit tax, but which, strictly speaking, do not meet the definition of a profit tax under IFRS.

For a parent company obligated to pay the top-up tax, this is not a levy on its own profits, as defined within IFRS. Instead, it pertains to the profits of a subsidiary company. If this tax were not considered income tax according to IFRS, it would not be categorized under ‘Taxes’ but rather be recognized as an expense within the operating result. Furthermore, deferred tax issues would not be relevant. The IAS 12 has been updated to clarify that this tax indeed falls under IAS 12.

Valuation of latencies

A more intricate issue lies in determining any deferred taxes arising from this top-up tax. The taxable profit determination for this levy can diverge from local ‘good business practice’ that governs local profit taxation. It may also be necessary to estimate to what extent this levy will apply in future years when deferred taxes are recognized. This estimation will determine the appropriate rate for valuing deferred taxes. The IASB has temporarily decided to exclude deferred taxes associated with this levy. Even though this exclusion does not fully reflect the actual taks position.

Disclosure Requirements

However, additional disclosure requirements do apply. Especially when local legislation has been adapted for Pillar Two but postponed for future years, companies must furnish available insights on the potential impact of Pillar Two tax. This disclosure should ideally include encompass a quantitative range of possible impacts.


As an example, the standard provides an example indicating the relative portion of group profits subject to Pillar Two and its impact on the effective tax rate. Notably, the standard permits an exemption if such information is not reasonably available, and the necessary disclosure is less extensive than initially proposed in the exposure draft. Nonetheless, a reasonable attempt to provide such information is expected.


These disclosure requirements are not applicable to companies with an annual turnover of less than 750 million euros or to those without branches in countries where a tax rate lower than 15 percent is in effect.

Dutch Reporting

In the Netherlands, a bill introducing this tax system has been sent to the House of Representatives, with implementation expected in 2023, effective from the 2024 fiscal year. In principle, the issues described will apply to Dutch annual accounting rules from the 2023 fiscal year onwards. The Council for Annual Reporting has not yet announced any changes to its guidelines.


Source: F&A Actueel 2023, issue 9.

👉 Also read our article A worldwide minimum tax rate is hot topic.



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