FRS 102 temporary amend for 15% global tax issue

FRS 102 temporary amend for 15% global tax issue

Jul 19, 2023

The Financial Reporting Council has issued amendments to UK GAAP accounting rules to allow for transition to OECD 15% global base tax rate

This means that FRS 102 Financial Reporting Standard and FRS 101 Reduced Disclosure Framework have both been amended to take into account the reform to international tax rules under the Pillar Two model.

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 amount of income tax. The rules apply to multinationals with revenue of over €750m, subject to certain exclusions.

The amendments to FRS 102 introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules, alongside targeted disclosure requirements.

The FRC said: ‘We have finalised the amendments, which are an IFRS-based solution with appropriate changes and simplifications. Overall, the FRC believes that the amendments will have a positive impact on financial reporting that is expected to exceed the costs of applying the new requirements.’

The amendments will require an entity to disclose the fact that it expects to fall within the scope of Pillar Two legislation (paragraph 29.28) and a requirement for an entity to disclose known or reasonably estimable qualitative and quantitative information that helps users of the financial statements understand the entity’s exposure to Pillar Two income tax. However, there is an exemption for groups that provide equivalent disclosures in the consolidated financial statements in which the entity is included.

The temporary exception is effective immediately and the objective based disclosure requirements are effective for accounting periods beginning on or after 1 January 2023, with early application permitted.

The amendments to FRS 101 provide an exemption from some of the disclosure requirements in IAS 12 Income Taxes, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.