FRC consults on temporary tax amendment to FRS 102

FRC consults on temporary tax amendment to FRS 102

Apr 8, 2023

The Financial Reporting Council (FRC) is consulting on amendments to FRS 102 and FRS 101 to introduce a temporary exception for accounting for deferred taxes.

The FRED 83 Draft amendments are being introduced as a result of the introduction of the OECD’s Pillar Two model rules which will introduce a 15% base tax rate for multinationals. Alongside the temporary exception to the treatment of deferred taxes, there will also be targeted disclosure requirements.

The Pillar Two requirement will only affect a limited number of companies that report under FRS 102, but the changes are necessary as the FRC anticipates that some entities applying FRS 102 will be within the scope of Pillar Two legislation. The standard setter has not given an indication of the number of companies affected.

OECD statistics indicate that there are 387 multinationals with headquarters in the UK, and 61 in Ireland.

The OECD’s Pillar Two model rules introduce a global system of top-up taxes that aim to ensure that large multinational groups pay a minimum rate of 15% corporation tax.

The proposal is that if an entity expects to be within the scope of Pillar Two legislation it will have to disclose that fact, as well as the tax expense (income) and profit or loss before taxation for any affected jurisdictions in aggregate, as well as the resulting weighted average effective tax rate.

The 15% base tax rate applies to multinational groups with revenue of over €750m (£658m), subject to certain exclusions.

FRED 83 is based on similar proposals issued by the International Accounting Standards Board (IASB). To make similar accounting relief and disclosure requirements available in the FRC’s financial reporting standards to a consistent timeframe the FRC is consulting now, rather than waiting for the IASB’s final amendments.