Exposure Draft - International Tax Reform — Pillar Two Model Rules (Proposed amendments to IAS 12)

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 IAS 12 (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.

ACCA believes tax should be an integrated consideration when deciding an entity’s business model, overall strategy and plans. Reporting of a company’s tax practices, such as tax strategy, governance and risk management enables users to understand the company’s tax position and various tax considerations. Also, companies should not pursue aggressive tax avoidance that have no clear purpose other than to avoid tax by complicated schemes.

On the other hand, complex tax legislation and systems are likely to result in non-compliance and anti-avoidance measures produce complex and detailed legislation.

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. 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.

The proposed mandatory exception will give companies a temporary relief from dealing with uncertainty in accounting for deferred taxes arising from Pillar Two model rules. Companies will appreciate the breathing space. We also echo the IASB’s view that it will need time to study how the rules have been implemented around the world and consider whether it needs to undertake further work.

We suggest the IASB review the exception after at least one year of application but do not remove the exception until it has studied the evolving tax implications and is able to provide guidance for practical and consistent application of IAS 12 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 with directly affected stakeholders to fully understand the implications. If the IASB decides to undertake standard setting activity, we suggest reviewing the effectiveness of IAS 12 as a whole, including tax disclosures.

Our detailed responses to the specific questions asked are set out on the consultation response document found on this page.