IASB proposes leeway for deferred tax accounting under OECD rules

The International Accounting Standards Board proposed amendments to its income tax standard to provide temporary relief from accounting for deferred taxes arising from the imminent implementation of the Organization for Economic Cooperation and Development's Pillar Two model rules.

The IASB proposal comes in response to concerns from its constituents about the potential implications of the OECD corporate tax rules when it comes to accounting for income tax in financial statements. In particular, stakeholders were concerned about the uncertainty over the accounting for deferred taxes arising from the rules. They said there was an urgent need for clarity in light of the imminent implementation of the OECD rules in some international jurisdictions.

The Pillar Two model rules provide governments a way to address the tax challenges arising from digitalization and introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to multinational companies with revenue above 750 million euros and is estimated to generate around $150 billion in additional global tax revenues annually. The rules have still not been approved in the U.S., although the Inflation Reduction Act did include a 15% minimum tax rate for some companies (see story).

The proposed amendments from the IASB to International Accounting Standard 12, "Income Taxes," would introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the rules, as well as targeted disclosure requirements for affected companies.

"The IASB is monitoring developments in this space and in response has proposed amendments that will provide timely relief for affected companies and will avoid inconsistent interpretations, and therefore inconsistent application, of IAS 12 while providing investors with useful information," said IASB chair Andreas Barckow in a statement Monday.

The exposure draft is open for comment until March 10. Due to the project's accelerated nature, the IASB hopes to finalize any amendments in the second quarter of 2023, subject to comments on the exposure draft.

The OECD's two-pillar solution for minimum corporate taxes and digital taxes were agreed to in October 2021 with the goal of deterring multinational companies from shifting their profits to low-tax countries. The initial timeline for implementing the rules was supposed to begin this year, although many countries like the U.S. are still facing hurdles in getting agreement politically on the rules, even though 137 countries and jurisdictions approved them in 2021.