Accounting for BEPS – Pillar Two

The global minimum tax of 15% has been much publicised and will be a significant additional cost from 2024 onwards. However, what tends to get overlooked is the requirement to comment on these provisions in the 2023 financial statements.


In October 2021, over 135 jurisdictions, as part of the Organisation for Economic Cooperation and Development’s (OECD’s) project to address tax challenges in the digitalised economy agreed to update the international tax system to introduce Global Base Erosion (GloBE) rules. These rules provide for a coordinated system of taxation intended to ensure large multinational enterprise (MNE) groups pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. It does so by imposing a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate.

In December 2021, the OECD published the report Tax Challenges Arising from Digitisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar 2), outlining the scope of the GloBE rules, certain key definitions, and how they are intended to operate.

On 12 December 2022, the European Council confirmed that the EU reached a unanimous agreement on a Directive regarding the implementation of BEPS – Pillar Two: Global Minimum Effective Tax Rate rules. The Directive was required to be transposed into Member States’ national law by the end of 2023. 

On 23 May 2023, the International Accounting Standards Board (IASB) issued International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12 to clarify the application of IAS 12 income taxes to income taxes arising from tax law enacted or substantively enacted to implement the GloBE rules.

On 19 October 2023, the Irish Government published Finance (No. 2) Bill 2023 which included proposed legislation for the implementation of the GloBE rules in Ireland. The Bill was signed into law on 18 December 2023 with the Irish GloBE rules coming into effect on 31 December 2023.

As the GloBE rules have now been enacted, impacted companies are subject to the disclosure requirements contained in the IASB’s amendment to IAS 12.

Disclosure requirements

While the 15% effective rate legislation applies from 1 January 2024, accounting standards require the impact of the provisions to be addressed in the 2023 financial statements. The following are the required accounting disclosures for the year ending 31 December 2023:

  • A temporary exception from accounting for deferred taxes at the 15% effective tax rate (ETR). This exception is mandatory for the year ended 31 December 2023 and its use is required to be disclosed in the financial statements.
  • Disclosure of information that could assist users of the financial statements better understand the company’s exposure to Pillar Two. This could include:
    • Information that is known or can be reasonably estimated to understand the company’s exposure to Pillar Two income taxes at the reporting date
    • Information that does not need to reflect all of the specific requirements in the legislation:
      • Qualitative information: How the company is affected by Pillar Two and in which jurisdictions the exposure arises – i.e. where the top-up tax is triggered and where it will need to be paid?
      • Quantitative information: The proportion of profits that may be subject to Pillar Two income taxes and the average ETR applicable to those profits, or how the average ETR would have changed if Pillar Two legislation had been effective and whether the company would have qualified for any reliefs/ safe harbours.
      • As the proposed Irish GloBE rules were only published in October 2023 and finalised in December 2023, companies and their advisors may not have had sufficient time to fully assess their exposure to Pillar Two. Where information is not known or cannot be reasonably estimated at the reporting date, then the company should disclose a statement to that effect and information about its progress in assessing the Pillar Two exposure.

Illustrated below is an example of how these disclosures may appear in the 2023 financial statements.

Example – XYZ Banking Group

  • XYZ Banking Group is a global banking group headquartered in the United States.
  • XYZ Banking Group has a global turnover in excess of €750m and is expected to fall within the scope of Pillar Two.
  • XYZ Ireland Limited is an Irish incorporated and tax-resident subsidiary of the XYZ Banking Group.
  • XYZ Ireland Limited employs 100 people at its Irish office which it purchased in 2010.
  • XYZ Ireland Limited has a branch located in Germany.

Impact of BEPS – Pillar Two on the company

  • The company is a member of the XYZ Banking Group which is expected to be a MNE within the scope of Pillar Two.
  • The company has applied the mandatory exception from accounting for deferred tax on the 15% minimum effective rate.
  • XYZ Banking Group has assessed the impact of Pillar Two and it is expected that a top-up tax will be payable in Ireland for 2024 and into the future. The effective tax rate of XYZ Banking Group on its Irish profits for the year ended 31 December 2023 is 12.5% and this is expected to remain stable into the future. XYZ Banking Group is expected to avail of substance-based relief for eligible payroll costs and tangible assets located in Ireland. Therefore, a top-up tax of between 0% and 2.5% is expected to apply to the company’s Irish profits.
  • As the effective tax rate of XYZ Banking Group on its German profits for the year ended 31 December 2023 is 25%, no top-up tax is expected to apply to the company’s German profits.

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