Consultation: ED International Tax Reform - Pillar Two Model Rules Proposed amendments to the IFRS for SMEs Standard

ACCA welcomes the opportunity to provide views in response to the IASB’s exposure draft (ED) for International Tax Reform – Pillar Two Model Rules: Proposed amendments to the IFRS for SMEs Standard (hereinafter referred to as the ‘ED’). This was done with the assistance of ACCA’s Global Forum for Corporate Reporting and Global Forum for Taxation.

The Pillar Two model rules, that aim to ensure large multinational enterprises (MNEs) pay a minimum amount of tax on income arising in each jurisdiction in which they operate, are by no means simple. Small and medium sized entities (SMEs) may be affected by Pillar Two model rules by virtue of being a subsidiary in a multinational group.

The top-up tax rate will be influenced by an entity and its related entities’ performance and tax payments in a jurisdiction, among other factors. Applying these rules and determining the deferred tax impact are likely to be complex and very challenging in practice. The cost and effort to produce reliable information may outweigh the benefits and make this seem like an impractical exercise, particularly for SMEs.

We suggest the IASB prioritise making the mandatory exception effective as soon as possible, while ensuring the disclosure requirements are proportionate to SMEs. Please refer to our responses to questions two and three.

The proposed mandatory exception will give SMEs a temporary relief from dealing with uncertainty in accounting for deferred taxes arising from Pillar Two model rules. The breathing space will be appreciated. The IASB will need time to study how the rules have been implemented around the world and consider whether it needs to undertake further work – for both IAS 12 and Section 29 of the IFRS for SMEs Standard.

We suggest the IASB maintain the exception until it has studied the evolving tax implications and is able to provide guidance for practical and consistent application of Section 29 in accounting for top-up tax recharges within individual entity’s accounts and deferred tax arising from Pillar Two model rules. We encourage the IASB to consult directly with affected stakeholders to fully understand the implications.

To read the response in full, please download the consultation document available on this page.