A Review of FRED 83 – The UK’s Pillar 2 Tax Accounting Proposals

Yesterday, the UK Financial Reporting Council (FRC) issued Financial Reporting Exposure Draft (FRED) 83 on ‘Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 101 Reduced Disclosure Framework’.

Proposals include a temporary exception to accounting for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules, alongside targeted disclosure requirements.

This follows Exposure Draft IASB/ED/2023/1 issued by the International Accounting Standards Board (IASB) for proposed amendments to IAS 12 to take account of the Pillar Two Model Rules.

The IASB proposals also include a temporary deferred tax exception as well as disclosure requirements, however, the UK FRS proposal includes some substantive differences to the IASB proposal. See: IASB Issues Pillar Two Exposure Draft For Deferred Tax.

Comments on FRED 83 are requested by 24 May 2023 and the FRC plans to finalise any amendments in summer 2023.

FRS 102 Amendments

Deferred Tax Exception

FRED 83 includes new Sections 29.2B and 29.12A into FRS 102 which provide mandatory temporary exceptions to (1) recognising or disclosing information about deferred tax assets and liabilities related to Pillar Two income tax, and (2) taking the effects of Pillar Two legislation into account when measuring deferred tax assets and liabilities.

In particular, they provide: