The Institute of Chartered Accountants of India (ICAI) has issued amendments to AS 22, Accounting for Taxes on Income, effective from April 1, 2024, for non-company entities. These amendments introduce a temporary exception to the requirements for recognizing and disclosing deferred tax assets and liabilities related to Pillar Two income taxes, in light of the international tax reform and Pillar Two Model Rules endorsed by the OECD/G20. This ensures large multinational enterprises (MNEs) pay a minimum level of tax on income in each jurisdiction. The amendments also include targeted disclosure requirements for entities affected by these rules.
Accounting Standards Board
The Institute of Chartered Accountants of India
29th July, 2024
Amendments to AS 22, Accounting for Taxes on Income issued by the ICAI
(For non-company entities)
International Tax Reform-Pillar Two Model Rules
The Pillar Two Model Rules, released on 20 December 2021, are part of the Two-Pillar Solution to address the tax challenges of the digitalisation of the economy that was agreed by 137 member jurisdictions of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting’s Statement (BEPS) and endorsed by the G20 Finance Ministers and Leaders in October 2021. The Pillar Two Model Rules are designed to ensure large multinational enterprises (MNEs) pay a minimum level of tax on the income arising in each jurisdiction where they operate
Considering that entities may need time to determine how to apply the principles and requirements in AS 22, Accounting for Taxes on Income (issued by the ICAI) to account for deferred taxes related to top-up tax, the Council of the ICAI decided to introduce a temporary exception to the requirements in AS 22 (issued by the ICAI) to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes because once the Pillar Two Model Rules are enacted in India, these amendments would be relevant to the non-company entities applying Accounting Standards issued by the ICAI and to whom Pillar Two Model Rules will be applicable.
The amendments introduce:
(a) a temporary exception to the requirements to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes; and
(b) targeted disclosure requirements for affected entities.
Amendments to AS 22, Accounting for Taxes on Income issued by the ICAI for non-company entities are effective for annual reporting periods beginning on or after April 1, 2024.
***
Amendments to AS 22, Accounting for Taxes on Income
Paragraphs 2A, 32A–32D (including their related heading and example after paragraph 32D) and 35 are added.
Scope
…
2A This Standard applies to taxes on income arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Cooperation and Development (OECD), including tax law that implements qualified domestic minimum top-up taxes described in those rules. Such tax law, and the taxes on income arising from it, are hereafter referred to as ‘Pillar Two legislation’ and ‘Pillar Two income taxes’. As an exception to the requirements in this Standard, an enterprise should neither recognise nor disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.
…
Presentation and Disclosure
…
International tax reform—Pillar Two model rules
32A An enterprise should disclose that it has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes (see paragraph 2A).
32B An enterprise should disclose separately its current tax expense (income) related to Pillar Two income taxes.
32C In periods in which Pillar Two legislation is enacted or substantively enacted but not yet in effect, an enterprise should disclose known or reasonably estimable information that helps users of financial statements understand the enterprise’s exposure to Pillar Two income taxes arising from that legislation.
32D To meet the disclosure objective in paragraph 32C, an enterprise should disclose qualitative and quantitative information about its exposure to Pillar Two income taxes at the end of the reporting period. This information does not have to reflect all the specific requirements of the Pillar Two legislation and can be provided in the form of an indicative range. To the extent information is not known or reasonably estimable, an enterprise should instead disclose a statement to that effect and disclose information about the enterprise’s progress in assessing its exposure.
Examples illustrating paragraphs 32C–32D
Examples of information an enterprise could disclose to meet the objective and requirements in paragraphs 32C–32D include:
(a) qualitative information such as information about how an enterprise is affected by Pillar Two legislation and the main jurisdictions in which exposures to Pillar Two income taxes might exist; and
(b) quantitative information such as:
(i) an indication of the proportion of an enterprise’s profits that might be subject to Pillar Two income taxes and the average effective tax rate applicable to those profits; or
(ii) an indication of how an enterprise’s average effective tax rate would have changed if Pillar Two legislation had been in effect.
Provided that a Micro, Small and Medium-sized Enterprise (Levels IV, III and II non-company entities) may not apply the disclosure requirements laid down in paragraphs 32C and 32D.
…
Effective date
35 International Tax Reform—Pillar Two Model Rules, added paragraphs 2A and 32A–32D. An enterprise should:
(a) apply paragraphs 2A and 32A immediately upon the issue of these amendments and retrospectively; and
(b) apply paragraphs 32B–32D for annual reporting periods beginning on or after 1 April 2024. An enterprise is not required to disclose the information required by these paragraphs for any interim period ending on or before 31 March 2025.
