Exposure Draft proposes disclosure requirements for Pillar 2


In December 2022, the EU Directive on Pillar 2 was published, the OECD public consultation document on the GloBE Information Return was issued and in January 2023, an Exposure Draft was published by the IASB. As a result, the timeframe in which companies subject to Pillar 2 will need to take action has been accelerated with first deliverables due already in early 2024.

A key consequence of these developments is that all groups that are in scope of the Pillar 2 framework may be required to make detailed disclosures in the financial statements that precede the entry into force of Pillar 2. For most groups, this would mean that the disclosures need to be made in the FY 2023 statements. In addition, the 2024 Q1 tax provisioning will need to take into account the impact of Pillar 2.

The context: an agreement on Pillar 2 (or GloBE) rules

Further to the publication of the OECD Model Rules for the implementation of Pillar 2 to ensure a global minimum taxation for large groups in December 2021, the EU Member States finally reached an agreement on Pillar 2. The EU Directive on Pillar 2 was published in the EU Journal on 22 December 2022. 

The implementation into Member States’ national law should occur by the end of 2023, to enter into effect in 2024 (i.e. applicable for accounting periods ending after 31 December 2023). More information can be found in our dedicated newsflash from 16 December 2022. 

In the meantime, other countries have also started to pass domestic legislation on Pillar 2 global minimum tax rules (such as South Korea) and we expect that more countries will follow in the course of the year, including Belgium.

No doubt the road towards Pillar 2 compliance will be a challenging journey to meet the deadlines imposed by the Model Rules and EU Directive. The first Pillar 2 tax returns (the GloBE Information Returns) are expected to be filed by 30 June 2026 for financial years ending on 31 December 2024. An extensive list of data points, as reflected in the OECD public consultation document on the GloBE Information Return published in December 2022, will need to be collected and a clear process will need to be designed, well ahead of the first filing. 

IASB Exposure Draft proposes specific disclosure requirements

The first intermediary reporting milestone is expected to be related to disclosures of group consolidated financial statements. No formal (final) guidance has been published yet in this respect but the Exposure Draft published by the International Accounting Standards Board (IASB) on 9 January 2023 gives further insight. No other guidance has been published (yet) to our knowledge (for instance in US GAAP).

The Exposure Draft was published in response to the Staff Paper issued by the staff of the IFRS Foundation in November 2022. The Exposure Draft – which is a public consultation document – includes proposed amendments to IAS 12 (the IFRS standard that prescribes the accounting treatment for income taxes). Based on the comments received from the stakeholders, the IASB will decide whether to proceed with the proposed amendments, if any, in the second quarter of 2023.

The Exposure Draft discusses several of the tax accounting implications of Pillar 2 for IFRS reporters, including disclosures requirements. It is proposed that in periods in which the Pillar 2 legislation is enacted or substantively enacted, but not yet in effect – which is expected to be the case in Belgium and in many other jurisdictions over the course of 2023 – the disclosures should include:

  • information on Pillar 2 legislation (substantively) enacted in jurisdictions where the group operates;
  • the jurisdictions in which the average effective tax rate (calculated in line with IAS 12) for the period is below 15%. Additional information will also need to be disclosed in this respect;
  • further to an assessment, jurisdictions in which a Pillar 2 top-up tax would be expected to be paid even though the ETR (calculated in line with IAS 12) is higher than 15%;
  • further to an assessment, jurisdictions in which a Pillar 2 top-up tax would not be expected to be paid even though the ETR (calculated in line with IAS 12) is lower than 15%.

In periods in which Pillar 2 legislation is in effect – typically from 2024 – the IASB proposes that groups disclose their Pillar 2 current tax expenses (income) separately to help users of financial statements understand the magnitude of the Pillar 2 top-up tax relative to overall tax expenses.

In light of the proposals in the IASB Exposure Draft – which still need to be formally endorsed by the IASB – it is likely that specific Pillar 2 disclosures will need to be made for annual reporting periods beginning on 1 January 2023

At the same time, groups should also perform an assessment of their current deferred tax disclosures to ensure appropriate disclosure of their deferred tax assets and to secure their use for Pillar 2 purposes. For instance, groups need to provide sufficient information on the nature and amounts of the unrecognized deferred tax assets. This is a key assessment which can already be carried out for the 2022 year-end

In short: what is at stake?

In view of the publication of the (IFRS) consolidated financial statements for financial years ending on or before 31 December 2023 and among other things in light of the IASB Exposure Draft – still subject to formal endorsement by the IASB (and the EU) – groups may need to:

  1. prepare a disclosure statement on the impact of Pillar 2 (this requires an impact assessment and initial calculations);
  2. perform an assessment of deferred tax disclosures to avoid any Pillar 2 leakage.

In view of the 2024 first quarter tax provisioning, groups may also need – in light of the IASB Exposure Draft and subject to its formal endorsement – to:

  1. be able to calculate the Pillar 2 Top-Up Tax in the tax provisioning calculations;
  2. have implemented a holistic process (people, process, technology, data and accounting & tax technical governance).
Next steps

Don’t wait any longer to take action. Now is the time to kick-start your Pillar 2 journey. There is no time to lose when it comes to the people, process, technology and data challenges as well as the accounting & tax technical governance considerations of each reporting milestone, the first ones being (for calendar year financial years):

  • the disclosure aspects to be considered before the publication of the consolidated financial statements of 31 December 2023; and
  • the computation of the Pillar 2 Top-Up Tax for the 2024 first quarter tax provisioning (and in some countries also in the context of prepayments).

Let’s stay connected. We will regularly provide insights on the Pillar 2 journey and share our on-the-ground experience gained from our multiple collaborations with multinational groups. For more information on the Pillar 2 journey and the accelerators PwC can put at your disposal, please reach out to your regular PwC contact, Pieter Deré (International Tax),Koen De Grave (Tax Accounting Services) or Maxim Allart (Tax Accounting Services).