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Global Anti-Base Erosion (GloBE) Rules and Implications for International Accounting Standard

Implications For IAS 12 Income Taxes
Koh Wei Chern


  • Singapore intends to implement Base Erosion and Profit Shifting Pillar Two (BEPS 2.0) rules from 2025.
  • As the developments of BEPS 2.0 are fluid, Singapore will continue to monitor developments internationally and adjust implementation accordingly. Sufficient notice will be provided to the multinational enterprises (MNEs) affected.
  • Despite the various guidance OECD provides, there will likely still be differences among jurisdictions in their legislated Global Anti-Base Erosion rules, leading to uncertainty for affected MNEs.

In the 2023 Budget Speech, Deputy Prime Minister and Minister for Finance Lawrence Wong highlighted that Singapore’s “corporate tax system will be affected by Base Erosion and Profit Shifting, or BEPS 2.0. Pillar Two of BEPS will introduce a global minimum effective tax rate of 15% for large MNE (multinational enterprise) groups”. Singapore intends to implement Pillar Two rules from 2025. What is BEPS 2.0 and some of its key developments? What are its implications for International Accounting Standard (IAS) 12 Income Taxes and the resulting amendments on IAS 12? This article serves to highlight some of these issues.

BEPS 2.0

BEPS refers to tax planning strategies by MNEs that exploit gaps and mismatches in tax rules to artificially shift profits to locations with no/low tax rates and no/little economic activity. In September 2013, the Organisation for Economic Co-operation and Development (OECD) and G20 countries joined forces and developed an Action Plan to address BEPS. The OECD/G20 Inclusive Framework on BEPS (IF) brings all interested jurisdictions to address BEPS issues. In October 2021, the IF agreed to a BEPS 2.0 Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy. Based on the list dated 9 June 2023, 139 jurisdictions, including Singapore, have agreed to the solution and its implementation plan, which seeks to ensure that MNEs pay a fair amount of tax wherever they operate.

Briefly, even when profits are already allocated in line with transfer pricing rules, Pillar One seeks to re-allocate some profits and in turn taxes from where the economic activities are conducted to the market jurisdictions, that is, where the customers are. Pillar Two, also known as the Global Anti-Base Erosion (GloBE) rules, introduces a minimum effective tax rate (ETR) of 15% for affected MNE groups. For example, suppose an affected MNE has an ETR of less than 15% in Singapore at the group level. In that case, there is a possibility that the MNE would have to pay this difference of up to 15% in other jurisdictions and/or in Singapore if Singapore implements a domestic Top-Up Tax1. Regardless of the collecting jurisdiction, entities must pay additional taxes, which could affect the income tax accounting under IAS 12.


MNE groups with revenue in their consolidated financial statements exceeding €750 million in at least two of the four preceding fiscal years fall within scope. Constituent entities of these MNE groups within the same jurisdiction will need to compute the ETR at the jurisdiction level.

Figure 1 illustrates how the Top-Up Tax may be computed for and collected from an MNE group which falls within the scope of GloBE rules.

Figure 1

If the computed ETR at the jurisdiction level in Country C is 10%3 (that is, less than the minimum rate of 15%), the Top-Up Tax rate is simply the difference of 5%4. The Top-Up Tax rate of 5% is then applied to a computed Excess Profits5, say, $100,000, to compute the Top-Up Tax of $5,000 arising in Country C. Where a Qualified Domestic Minimum Top-Up Tax (QDMTT)6 is implemented in Country C, Country C may collect the full amount of $5,000 or, if not, the QDMTT can be deducted to reduce this Top-Up Tax arising in Country C7.

Where QDMTT is not implemented in Country C, under the Income Inclusion Rule (IIR)8, the Top-Up Tax of $5,000 arising in Country C may be collected by the Parent’s jurisdiction (Country A) or when GloBE rules are not implemented by the Parent’s jurisdiction, to be collected by Subsidiary 1’s jurisdiction (Country B). If IIR cannot be applied because neither Country A nor Country B implemented GloBE rules, the Top-Up Tax of $5,000 arising in Country C may be collected by Country D under the Undertaxed Profits Rule9.


As a result of the Pillar Two or GloBE rules, the International Accounting Standards Board (IASB) staff documented three key stakeholders’ concerns at the November 2022 board meeting:

(i) How should an entity apply IAS 12 to account for the Top-Up Tax?
a. Is such a Top-Up Tax within the scope of IAS 12?
b. If so, which entity in the group should account for the income tax expense? In the case of our illustration, should the Parent, Subsidiary 1, Subsidiary 2 or Subsidiary 3 account for the Top-Up Tax of $5,000?

(ii) How useful is the information that could result from accounting for deferred taxes with respect to the Top-Up Tax?
a. Does such a Top-Up Tax give rise to temporary differences that affect future taxes payable?
b. If so, at what rate should the entity apply to measure such deferred tax effects arising therefrom?

(iii) The urgency of clarity given the imminent implementation of Pillar Two rules by some countries and jurisdictions.
a. For example, some jurisdictions are planning to enact the rules in 2023 and practitioners are requesting some directions from the standard-setters.

The IASB staff agreed with the stakeholders that “it is not immediately apparent how an entity would apply the principles and requirements in IAS 12 in accounting for Top-Up Tax arising from the Pillar Two model rules”. As such, the following amendments were proposed in the Exposure Draft for International Tax Reform – Pillar Two Model Rules Proposed amendments to IAS 12 in January 2023:

(i) a temporary mandatory exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules; and

(ii) targeted disclosure requirements.

After a shortened comment period of 60 days rather than the typical 120 days given the urgency, the temporary mandatory exception and most of the proposed targeted disclosure requirements were put through in the International Tax Reform – Pillar Two Model Rules Amendments to IAS 12 issued in May 2023. Specifically, the targeted disclosure requirements in the amendments are:

(i) An entity shall disclose that it has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.

(ii) An entity shall disclose separately its current tax expense (income) related to Pillar Two income taxes.

(iii) In periods in which Pillar Two legislation is enacted or substantively enacted but not yet in effect, an entity shall disclose known or reasonably estimable information that helps users of financial statements understand the entity’s exposure to Pillar Two income taxes arising from that legislation.


Several jurisdictions have announced their intention to implement Pillar Two in phases from 2024. Despite various guidance10 the OECD provides, there will likely still be differences among jurisdictions in their legislated GloBE rules, leading to uncertainty for affected MNEs. In his 2023 Budget Statement, DPM Wong did caveat that “the developments on BEPS 2.0 are fluid” and that Singapore will continue to monitor developments internationally and adjust implementation accordingly, with sufficient notice provided to the MNEs affected.

Given the fluid situation, the standard-setters, (i) by allowing a temporary exception in IAS 12, retain the comparability of financial information between entities; (ii) by requiring additional disclosures, enhance the understandability of the impact of the Top-Up Tax without affecting the financial statements; and (iii) by not specifying how long the temporary exception will be in place, have the leeway to monitor the international developments and subsequently put forth a better course of action when more information becomes available. It may well be the case that standard-setters eventually conclude that any Top-Up Tax under GloBE rules will not be within the scope of IAS 1211 and require them to be accounted for as a current tax expense when the GloBE rules obligations arise.

Koh Wei Chern is Associate Professor, and Tommy Yee Chun Tsian is Senior Lecturer, Accountancy Programme, School of Business, Singapore University of Social Sciences.

1 It was also announced in Budget 2023 that a domestic Top-Up Tax will be implemented by Singapore.

2 Based on OECD GloBE Model Rules. These model rules serve as a template to translate into local legislation to assist countries in their implementation of Pillar Two.

3 The ETR at the jurisdiction level is the same as the ETR of Subsidiary 2 based on GloBE Model Rules.

4 When a safe harbour is applicable, the Top-Up Tax for a jurisdiction is deemed to be zero.

5 Refer to Article 5.2.2. of OECD GloBE Model Rules on how Excess Profits are computed.

6 Refer to Article 10.1.1 of OECD GloBE Model Rules for a definition of Qualified Domestic Minimum Top-Up Tax.

7 Refer to Article 5.2.3 of OECD GloBE Model Rules.

8 Refer to Article 2.1 of the OECD GloBE Model Rules.

9 Refer to Article 2.4 of the OECD GloBE Model Rules.

10 Includes OECD GloBE Model Rules, Commentary to GloBE Model Rules, Safe Harbours and reliefs and Agreed Administrative Guidances.

11 Notably, under US GAAP, the GloBE minimum tax is treated as an alternative minimum tax per ASC 740 and there is no requirement to recognise or adjust deferred tax assets and liabilities for estimated future effects of GloBE minimum tax.

BEPS 2.0
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