[ESMA32-61-505 ] Letter to IASB on Exposure Draft International Tax Reform – Pillar Two Model Rules

The European Securities and Markets Authority (ESMA) welcomes the International Accounting Standards Board (IASB)’s initiative to introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules, and supports the Exposure Draft ED/2023/1 to make the temporary exception mandatory rather than optional.
However, ESMA considers the proposed exception to be a departure from the fundamental principles of IAS 12 and encourages the Board to closely monitor and analyse future developments and replace it with a sustainable solution as soon as possible.
ESMA encourages the IASB to engage with stakeholders on what actions are needed to support the consistent application of IAS 12, and supports the targeted disclosure requirements as well as the effective date and transition provisions proposed by the Board.ESMA agrees with the requirement in paragraph 88C(b) of the ED to disclose the jurisdictions in which the entity’s average effective tax rate is below 15%, the tax 2 expense and accounting profit for those jurisdictions in aggregate, and the resulting weighted average tax rate. It also agrees with the separate disclosure of current tax expense related to Pillar Two income taxes, and emphasises the importance of the timing of the publication of the amendment to IAS 12.
ESMA believes that convergence between IFRS and US GAAP in this area is of high importance and the IASB should coordinate its future work regarding the impact of Pillar Two model rules on financial reporting with the FASB.