Response 3 - BDO LLP

Call for comments on the Exposure Draft International Tax Reform – Pillar Two Model Rules: Proposed amendments to IAS 12

Introduction

The objective of this Invitation to Comment is to obtain input from stakeholders on the Exposure Draft (ED) International Tax Reform – Pillar Two Model Rules: Proposed amendments to IAS 12 (the Amendments), published by the International Accounting Standards Board (IASB) on 9 January 2023. The IASB's comment period ends on 10 March 2023.

UK endorsement and adoption process

The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS for use in the UK and therefore is the UK's National Standard Setter for IFRS. The UKEB also leads the UK's engagement with the IFRS Foundation (Foundation) on the development of new standards, amendments and interpretations. This letter is intended to contribute to the IASB's due process. The views expressed by the UKEB in this letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended International Accounting Standards undertaken by the UKEB.

Who should respond to this Invitation to Comment?

Stakeholders with an interest in the quality of accounts prepared in accordance with international accounting standards.

How to respond to this Invitation to Comment

Please download this document, answer any questions on which you would like to provide views, and return it together with the 'Your Details' form to [email protected] by midday on Friday 3 March 2023.

Brief responses providing views on individual questions are welcome, as well as comprehensive responses to all questions.

Privacy and other policies

The data collected through responses to this document will be stored and processed by the UKEB. By submitting this document, you consent to the UKEB processing your data for the purposes of influencing the development of and adopting IFRS for use in the UK. For further information, please see our Privacy Statements and Notices and other Policies (e.g. Consultation Responses Policy and Data Protection Policy)¹.

The UKEB's policy is to publish on its website all responses to formal consultations issued by the UKEB unless the respondent explicitly requests otherwise. A standard confidentiality statement in an e-mail message will not be regarded as a request for non-disclosure. If you do not wish your signature to be published, please provide the UKEB with an unsigned version of your submission. The UKEB prefers to publish responses that do not include a personal signature. Other than the name of the organisation/individual responding, information contained in the “Your Details” document will not be published. The UKEB does not edit personal information (such as telephone numbers, postal or e-mail addresses) from any other response document submitted; therefore, only information that you wish to be published should be submitted in such responses.

Questions

Mandatory temporary exception and 'sunset clause'

1The UKEB's draft comment letter supports the introduction of a mandatory temporary exception from accounting for deferred tax arising from the Pillar Two model rules. Do you agree with this? Please explain why or why not.

2Please include any comments you may have in response to question 1:

We agree with the exception given the complexity of the rules. We consider that given that significant assumptions may be required the information value of deferred tax amounts may be of limited use to users of financial statements.

3The UKEB's draft comment letter supports the absence of a 'sunset clause'. Do you agree with the absence of a 'sunset clause'? Please explain why or why not.

4Please include any comments you may have in response to question 3:

We agree with the reasons stated in paragraph 9 and A4 of the draft letter.

Disclosures in periods in which Pillar Two legislation is enacted or substantively enacted, but not yet in effect

5The UKEB's draft comment letter raises concerns about the clarity of draft paragraph 88C (a). Do you share these concerns? Please explain why or why not.

6Please include any comments you may have in response to question 5:

It is unclear what ‘information' this disclosure requirement refers to, and we share the concerns articulated in UKEB's draft letter

7The UKEB's draft comment letter raises concerns that the disclosures required by draft paragraph 88C (b) may not meet the disclosure objective expressed at paragraph BC19, i.e. “to help users assess an entity's exposure to paying top-up tax", as effective tax rates calculated on an IAS 12 basis could be a poor proxy for those calculated on a Pillar Two basis. Do you share these concerns? Please explain why or why not.

8Please include any comments you may have in response to question 7:

9The UKEB draft comment letter notes that stakeholders expressed concerns that 88C (c) does not provide a sufficient corrective to 88C (b). Do you share those concerns? Please explain why or why not.

10Please include any comments you may have in response to question 9:

We agree with the concerns as set out in paragraphs A15 and A16

11The UKEB's draft comment letter recommends the IASB considers replacing the detailed requirements in paragraph 88C with a more general requirement to provide information sufficient to meet the objective. Do you agree with this recommendation? Please explain why or why not.

12Please include any comments you may have in response to question 11.

While the framework proposed by the IASB in paragraph 88C does appear to have limitations, it should however aid comparability, at least within a jurisdiction. The UKEB's proposal would, in our view, not necessarily achieve that.

13The UKEB's draft comment letter recommends that the more general disclosure requirement should remain in place for the life of the temporary exception, but should be reconsidered when the IASB reviews the Amendments, once most jurisdictions have implemented the Pillar Two model rules. Do you agree with this recommendation? Please explain why or why not.

14Please include any comments you may have in response to question 13:

15The UKEB's draft comment letter supports the proposed requirement for entities to disclose their current tax expense in relation to Pillar Two income taxes separately, once Pillar Two is effective. Do you agree with this proposal? Please explain why or why not.

16Please include any comments you may have in response to question 15:

We agree with the reasons stated in paragraph A24

17Should the IASB retain its disclosure requirements for 88C (a), (b) and (c) as drafted, the UKEB's draft comment letter recommends that the IASB incorporates the objective of the disclosure requirement, i.e. “to help users assess an entity's exposure to paying top-up tax” (ED/2023/01 paragraph BC19) in the disclosure requirement itself at paragraph 88C. Do you agree with this recommendation? Please explain why or why not.

18Please include any comments you may have in response to question 17:

Disclosures in periods in which Pillar Two legislation is in effect

19The UKEB's draft comment letter supports the proposed requirement for entities to disclose their current tax expense in relation to Pillar Two income taxes separately, once Pillar Two is effective. Do you agree with this proposal? Please explain why or why not.

20Please include any comments you may have in response to question 19:

See Question 16

Effective date and transition

21The UKEB's draft comment letter supports the effective date and transition requirements. Do you agree with the support for these proposals? Please explain why or why not.

22Please include any comments you may have in response to question 21:

Thank you for completing this Invitation to Comment

Please submit this document by midday on Friday 3 March 2023 to: [email protected]