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Pillar Two and financial statements
IAS 12, FRS 101 and FRS 102 each require separate disclosure of the current tax expense (income) related to Pillar Two income taxes. As such, for accounting periods where Pillar Two rules apply, calculations are required to estimate the top-up tax payable by a group or confirm that no top-up tax is due.
An exception applies under IAS 12 such that no deferred tax assets or liabilities should be disclosed in relation to Pillar Two. Disclosure that this exception has been applied is required within the financial statements.
For groups operating in jurisdictions where Pillar Two rules are in force, but these are not expected to apply (eg because turnover is <€750m), it may be appropriate to include a disclosure that the legislation does not apply.
With significant Pillar Two experience, and a team of tax, accounting and technology specialists, we can support you and your business in its Pillar Two journey by applying a practical approach to understanding the specific risk to your business, engaging with stakeholders and building a robust reporting process.
Preparation for audit
Pillar Two legislation applies in Ireland for financial periods beginning on or after 31 December 2023 and for many businesses, the upcoming financial statements and audit will represent the first period in which Pillar Two legislation applies. The calculation of Pillar Two liabilities for the upcoming audit may also represent the first calculations of this type by the business.
It is important to ensure that key areas of complexity and risk within the Pillar Two rules are examined as part of the audit, some examples of which are included below. Businesses may also use this audit cycle as an opportunity to test the robustness of their finance systems and internal governance processes when collating complex tax calculations.
What are the key questions to consider?
- Has appropriate work been completed to understand potential Pillar Two exposure e.g. mapping of the group and analysis of top-up tax payable in jurisdictions the group operates in?
- Is the group up to date with relevant notifications in each jurisdiction it operates and nominations of local reporting entities (where different to Ultimate Parent Entity)?
- Does the group have a process in place to ensure Pillar Two filing deadlines are met?
- Where the transitional safe harbours are expected to apply, has the group undertaken an analysis to verify that the transitional safe harbour calculations have been based on ‘qualifying’ Country by Country reporting data?
- Where Pillar Two top-up tax is payable, has the statutory current tax provision been correctly calculated based on appropriate data sources and are the assumptions made appropriate?
- Has the group considered the impact of previously unrecognised deferred tax assets on the availability of the transitional safe harbours?
A multifaceted practical solution
RSM’s Pillar Two team is drawn from our international corporate tax team, transfer pricing and tax accounting specialists. We have diverse skills within the team, including relevant experience gained with in-house tax roles, accounting and international tax advisory, global tax reporting and tax technology. Our combination of skills makes us a great fit for multinational businesses looking to address Pillar Two with a practical, holistic approach that breaks down the journey to completing and filing Pillar Two returns into manageable steps.
The team have experience of IFRS, Irish GAAP and US GAAP and work closely with tax accounting and reporting, international tax and transfer pricing specialist colleagues across the RSM International network.
We are supporting a wide range of multinational clients across different sectors and at different stages of their Pillar Two journey, coordinating across multiple disciplines and jurisdictions to ensure their Pillar Two approach is tailored to their tax risk profile, internal resource and systems / technology capability.
