IAS 12.4A Pillar Two reform

[CPA Kevin Matt]

Hello All,

While IASB has introduced a temporary, mandatory exception in IAS 12.4A but would you recommend recording a provision if I expect a DTL to materialize in future as a result of adoption of pillar-2 reforms?

[Marek Muc]

Please provide more details about the scenario

[CPA Kevin Matt]

Let's take a simple example of an existing DTL at an effective tax rate of 10%. With the introduction of pillar 2 tax reforms the rate would rise to 15% thus a definite increase in the DTL. Do I factor in the increase now by creating a provision even though I continue to keep the existing DTL calculated at 10% (courtesy mandatory exception in IAS 12.4A)? My take would be "NO" as there is no past obligation but would be glad to also have your opinion on it. Thank you.

[Marek Muc]

As you noted, the exception 4A is mandatory, so Pillar Two consequences cannot be reflected in the calculation of deferred tax

[CPA Kevin Matt]

Hi again,

Allow me a follow up question please: Could it be that an entity increases the CIT by early adopting the reforms but the adjustment to CIT is not absorbed in the effective rate computation and later on in calculation of DTA/DTL.

[Marek Muc]

How is this different from the general exclusion of Pillar Two taxes from DTA/DTL calculation?

[CPA Kevin Matt]

I was thinking that if it could be possible that while an entity can choose to pay taxes as per pillar-2 tax reforms but for the effective tax rate computation old rates are used. Looking at your question though, it seems that an entity would ignore pillar-2 reforms completely for financial book close.