-
© 2024 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
20 November 2023 (updated 02 April 2024)
Many countries have amended their local laws to introduce a global minimum top-up tax1 as part of the international tax reform (see Pillar Two – State of play for an overview of legislative developments in countries around the world). This reform includes a two-pillar solution.
Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries. Pillar Two aims to ensure that large multinational groups pay at least the minimum rate of 15 percent on income arising in each jurisdiction in which they operate.
The new Pillar Two tax laws are very complex and it may be challenging to estimate their impact. Engage with your tax specialists and your users to ensure that your financial statements reflect appropriate amounts and provide meaningful and relevant information about your exposure to the top-up tax.
Read the transcript (PDF 115 KB)
There are four mechanisms under Pillar Two that countries can adopt.
To help you in preparing your financial statements, we answer your questions on the following key issues.
- Disclosures: To compensate for the potential loss of information resulting from the mandatory deferred tax accounting relief, companies are required to provide relevant disclosures in their financial statements from 31 December 2023 onwards.
- Impairment assessment: Companies may need to reflect the impact of upcoming changes in tax laws in their impairment assessments.
- Interim reporting: To determine how to reflect the current top-up tax and what information to disclose, companies need to consider the status of Pillar Two implementation in the countries where the group operates at the interim reporting date. This is because different countries are at different stages of implementing the legislation.
- Recharges of Pillar Two taxes: Companies within a group may enter into 'recharge arrangements' for Pillar Two taxes that are levied on one company, but triggered by another company. IFRS® Accounting Standards do not specifically address the accounting for these recharge arrangements in a company’s separate financial statements, and companies will need to develop an accounting policy, to be applied consistently.
Answering your questions
1 Global minimum top-up tax under the new OECD Pillar Two rules. Also referred to here as Pillar Two taxes.
2 GloBE – global anti-base erosion.
3 A country may introduce a minimum tax which does not qualify under the GloBE rules.
4 In development.