The International Accounting Standards Board (IASB) will be discussing the approach to Pillar Two in its November 22, 2022 meeting. As preparation for this, a staff paper has been issued to outline a proposed approach to Pillar Two.
Top-up tax (or any tax paid under a qualified domestic minimum top-up tax) will clearly impact on current tax, but would need to be considered for deferred tax purposes as well.
Accounting for deferred tax raises a number of, as yet, unsolved questions, not least which entity in a group would recognise an income tax expense resulting from the recognition of a top-up tax liability (ie the UPE/Parent/POPE, the entity that is allocated top-up tax or the entity whose low-taxed profits triggered the payment of top-up tax in a given jurisdiction).
When financial statements are being prepared, accounting disclosures will also need to be considered.
IAS 1, IAS 10 and IAS 12 all have provisions that can apply however the key determinant will be whether the domestic tax law to implement the Pillar Two GloBE Rules has been:
before the financial statements are issued.
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