Issue of Exposure Draft ED 325Issue of Exposure Draft ED 325

Issue of Exposure Draft ED 325

1. The Board’s proposals with respect to the amendments finalised in this Standard were exposed for public comment in July 2023 through Exposure Draft ED 325 International Tax Reform – Pillar Two Model Rules: Tier 2 Disclosures.
2. The significant issues considered by the Board in developing ED 325 are addressed in the following section.

Relevance of the amendments to AASB 1060

1. The AASB For-Profit Entity Standard-Setting Framework and the AASB Not-For-Profit Entity Standard-Setting Framework outline the approach adopted by the Board for considering whether to add to or amend disclosure requirements in AASB 1060 when the IASB makes amendments to full IFRS Standards.
2. The standard-setting frameworks first consider whether the amendments introduce a significant recognition and measurement difference between full IFRS Standards and the IFRS for SMEs Standard. If they don’t, the standard-setting frameworks state that no further action is required unless:
   1. the disclosures address a matter of public policy;
   2. the disclosures are of particular relevance in the Australian environment; or
   3. the amendments clarify or reduce existing disclosure requirements in full IFRS Standards.
3. In addition to the principles in the standard-setting frameworks, the Board acknowledged when finalising AASB 1060 that a review of the disclosures in AASB 1060 would need to take place any time the IFRS for SMEs Standard is updated (paragraph BC96).
4. Although there will be no recognition and measurement differences between full IFRS Standards and the IFRS for SMEs Accounting Standard or between Tier 1 and Tier 2 entities in Australia in respect of Pillar Two income taxes, the Board considers that Tier 2 entities applying the mandatory temporary exception should be required to include some disclosures in their financial statements to help users understand the effect of Pillar Two legislation on the financial statements.
5. In addition, the Board noted that the IASB proposed amendments to the IFRS for SMEs Standard, issuing Exposure Draft IASB/ED/2023/3 International Tax Reform – Pillar Two Model Rules – Proposed amendments to the IFRS for SMEs Standard in June 2023. IASB/ED/2023/3 proposes amendments to the IFRS for SMEs Standard that would:
   1. introduce a temporary exception to accounting for deferred taxes arising from the implementation of the Pillar Two model rules;
   2. introduce targeted disclosure requirements in periods when Pillar Two legislation is in effect; and
   3. clarify that ‘other events’ in the disclosure objective for income tax include enacted or substantively enacted Pillar Two legislation.
6. Therefore, the Board decided to propose amendments to AASB 1060 to require Tier 2 entities applying the temporary exception to include targeted disclosures in their financial statements.

Disclosures

1. As noted in paragraph BC6, a Tier 2 entity is required to apply the mandatory temporary exception to accounting for deferred taxes arising from the implementation of the Pillar Two model rules in AASB 112. To make the application of the exception transparent, the Board proposed requiring Tier 2 entities applying the temporary exception to disclose that fact.
2. In addition, consistent with the IASB’s proposed approach to amending the IFRS for SMEs Standard, the Board decided:
   1. in relation to periods before relevant Pillar Two legislation is in effect, not to propose specific disclosure requirements; and
   2. in relation to periods when relevant legislation is in effect, to propose requiring an entity to disclose its current tax expense (income) related to Pillar Two income taxes.
3. In making these decisions, the Board considered that:
   1. it was not necessary to add a new disclosure requirement for periods before relevant Pillar Two legislation is in effect because the existing disclosure requirement in paragraph 176 would be expected to result in Tier 2 entities affected by Pillar Two legislation providing some information about the nature and financial effect of enacted or substantively enacted Pillar Two legislation before it applies. However, the Board decided to propose clarifying that the reference in paragraph 176 to ‘other events’ includes enacted or substantively enacted Pillar Two legislation; and
   2. requiring a Tier 2 entity to disclose its current tax expense (income) related to Pillar Two income taxes when relevant legislation is in effect would help users of the financial statements understand the magnitude of Pillar Two income taxes relative to the entity’s overall tax expense (income). The Board considered this disclosure would not be costly to prepare because a Tier 2 entity would already be required in these circumstances to recognise current tax related to Pillar Two income taxes.