Page 1 of 3Our Ref.: C/FRSCSent electronically through the IFRS Foundation Website (www.ifrs.org)
6 March 2023Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure DraftInternational Tax Reform—Pillar Two Model Rules(Proposed amendments to IAS 12)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, ethics and sustainabilitydisclosures for professional accountants in Hong Kong. We are grateful for the opportunity to provideyou with our comments on this Exposure Draft (ED).The HKICPA appreciates the IASB’s efforts and timely response to the concerns of stakeholdersabout the implications for income tax accounting arising from the implementation of the Pillar Twomodel rules. Although the proposals in the ED do not provide a comprehensive solution to fullyaddress this issue, we agree that the ED serves as a practical interim solution before further work isperformed to determine how entities should apply IAS 12 to account for deferred tax related to thePillar Two model rules. Nevertheless, we have suggested some improvements that could help toclarify the proposals in the Appendix to this letter.Given the timing at which some jurisdictions are expected to enact or substantively enact the PillarTwo model rules, the rules could impact interim and annual financial statements issued before theamendments are finalised. Hence, the timing at which the amendments will be published by the IASBis critical and we strongly urge the IASB to finalise the amendments as soon as possible.In addition, considering that the ED does not specify how long the temporary exception would be inplace for valid reasons, we recommend that the IASB schedule for activities in its work plan includingmonitoring the enactment process of the Pillar Two model rules in different jurisdictions, analysingtheir impact on financial statements and assessing whether additional standard-setting activities arerequired, so that the temporary exception could be terminated at the appropriate time and that theaccounting for income taxes arising from the Pillar Two model rules could be clarified.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Anthony Wong (anthonylwwong@hkicpa.org.hk), Associate Directorof the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting DepartmentPage 2 of 3Work undertaken by HKICPA in forming its viewsThe HKICPA:
(i)
issued an Invitation to Comment on the ED on 10 January 2023 to its members and otherstakeholders;
(ii) sought input from its Income Tax/Deferred Tax Advisory Panel which is mainly comprised oftechnical and industry experts from accounting firms; and(iii) developed its views through its Financial Reporting Standards Committee, having reflected onits stakeholder views. The Committee comprises preparer representatives from various industrysectors, regulators, as well as technical and industry experts from small, medium and largeaccounting firms.Detailed comments on EDQuestion 1—Temporary exception to the accounting for deferred taxesWe agree with the IASB’s proposal to provide a mandatory temporary exception to the requirementsin IAS 12 under which an entity should neither recognise nor disclose information about deferred taxassets and liabilities related to Pillar Two income taxes.We acknowledge that entities need time to determine how to apply the principles and requirementsin IAS 12 to account for deferred taxes related to top-up tax, which in turn depends on howjurisdictions implement the Pillar Two model rules. The IASB also needs time to engage further withstakeholders and consider whether any action is needed to support the consistent application of IAS
12.Consequently, we agree with the IASB’s proposal for not specifying how long the temporaryexception would be in place in view of the time needed to monitor the development of the issue.Having said that, we recommend that the IASB schedule for activities in its work plan, includingmonitoring the enactment process of the Pillar Two model rules in different jurisdictions, analysingtheir impact and assessing whether additional standard-setting activities are required, so that thetemporary exception could be terminated at the appropriate time and that the accounting for incometaxes arising from the Pillar Two model rules could be clarified.Question 2—DisclosureMost of our respondents agree with the proposed new disclosures. A few respondents questionedthe reliability and usefulness of the information to be provided under the proposals. Theserespondents are concerned that any impact assessment entities make at this stage could only bebased on information that is not yet certain (for example, profit forecasts of different operations, theevolving Pillar Two model rules and how different jurisdictions enact the legislation). Hence, they areconcerned that the disclosures under paragraph 88C could be misleading and there could be legalimplications to the entities if the disclosures made by them are not the same as the actual outcome.Furthermore, we consider that the following areas can be clarified by means of guidance orillustrative examples to avoid inconsistent application of the proposals:
(i)
We understand that the ED focuses on addressing the stakeholders’ concerns on theaccounting for deferred taxes in the consolidated financial statements of the ultimate parententity of a group subject to the Pillar Two model rules. However, this is not clear to ourrespondents. We consider that the IASB should clarify the scope of the ED if it intends to focuson addressing the issue in the context of consolidated financial statements.In addition, our respondents questioned whether and how IAS 12 applies to top-up tax arisingfrom the Pillar Two model rules outside the context of consolidated financial statements of theultimate parent entity. For example, in the separate financial statements of the ultimate parententity where the ultimate parent is liable to pay the top-up tax, but the tax was triggered byanother entity of the group, the ED is not clear as to whether IAS 12 would apply to such case,and if so, which entity should make the proposed disclosures. Should they be made in theseparate financial statements of the ultimate parent entity, the group entity that triggered thetop-up tax or both? We suggest the IASB clarify this.AppendixPage 3 of 3(ii)
Paragraph 88C(a) requires the disclosure of information about Pillar Two legislation enactedor substantively enacted in jurisdictions in which the entity operates. Our respondents considerthat the ED is unclear as to the level of detail required for such proposal. Particularly, in respectof ‘information about the Pillar Two legislation’, it is not clear whether a detailed description ofthe mechanism through which the legislation works is required or whether disclosing a list ofjurisdictions where the Pillar Two legislation has come into effect would suffice.(iii)
A few respondents considered that there may be a practical difficulty in determining whichjurisdictions should be disclosed under the proposed disclosure in paragraph 88C(b). Take forexample an entity that is incorporated in the Cayman Islands and which does not have anyoperations there. The entity has an office in Hong Kong but the profit is not subject to tax inany jurisdiction in the world due to the application of double tax agreements and therefore hasan effective tax rate of zero. It is not clear whether the entity should disclose Hong Kong orCayman Islands under the proposed paragraph 88C(b) in this situation.(iv) Paragraph BC24(c) of the ED implies that the proposed disclosure in paragraph 88C(c) wouldbe required only if entities have made the assessments in preparing to comply with the PillarTwo legislation. However, our respondents considered that clarification on the requirement isnecessary, particularly whether a statement of fact is needed if entities have not made anyassessments, and the level of detail expected for entities that have made the assessments(e.g. bases for the assessment and assumptions).Question 3—Effective date and transitionWe support the proposed effective date and transition requirements for the reasons stated inparagraphs 27 – 28 of the Basis for Conclusions.Other commentsThe ED currently defines the ‘Pillar Two model rules’ in the Basis for Conclusions (BC1) instead ofin the body of the Standard (paragraph 4A). We consider that this term plays a pivotal role in thedevelopment of the proposals and should be defined in the body of the Standard. This can facilitatereaders to understand the meaning of the term when they first come across it in the body of theStandard and is also consistent with the presentation in other standards, e.g. IFRS 9 FinancialInstruments defines the term ‘Interest Rate Benchmark Reform’ in IFRS 9.6.8.2.~ End ~
IASB Exposure Draft International Tax Reform—Pillar Two Model Rules (Proposed amendments to IAS 12)
下载原件Page 1 of 3Our Ref.: C/FRSCSent electronically through the IFRS Foundation Website (www.ifrs.org)
6 March 2023Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure DraftInternational Tax Reform—Pillar Two Model Rules(Proposed amendments to IAS 12)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, ethics and sustainabilitydisclosures for professional accountants in Hong Kong. We are grateful for the opportunity to provideyou with our comments on this Exposure Draft (ED).The HKICPA appreciates the IASB’s efforts and timely response to the concerns of stakeholdersabout the implications for income tax accounting arising from the implementation of the Pillar Twomodel rules. Although the proposals in the ED do not provide a comprehensive solution to fullyaddress this issue, we agree that the ED serves as a practical interim solution before further work isperformed to determine how entities should apply IAS 12 to account for deferred tax related to thePillar Two model rules. Nevertheless, we have suggested some improvements that could help toclarify the proposals in the Appendix to this letter.Given the timing at which some jurisdictions are expected to enact or substantively enact the PillarTwo model rules, the rules could impact interim and annual financial statements issued before theamendments are finalised. Hence, the timing at which the amendments will be published by the IASBis critical and we strongly urge the IASB to finalise the amendments as soon as possible.In addition, considering that the ED does not specify how long the temporary exception would be inplace for valid reasons, we recommend that the IASB schedule for activities in its work plan includingmonitoring the enactment process of the Pillar Two model rules in different jurisdictions, analysingtheir impact on financial statements and assessing whether additional standard-setting activities arerequired, so that the temporary exception could be terminated at the appropriate time and that theaccounting for income taxes arising from the Pillar Two model rules could be clarified.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Anthony Wong (anthonylwwong@hkicpa.org.hk), Associate Directorof the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting DepartmentPage 2 of 3Work undertaken by HKICPA in forming its viewsThe HKICPA:
(i)
issued an Invitation to Comment on the ED on 10 January 2023 to its members and otherstakeholders;
(ii) sought input from its Income Tax/Deferred Tax Advisory Panel which is mainly comprised oftechnical and industry experts from accounting firms; and(iii) developed its views through its Financial Reporting Standards Committee, having reflected onits stakeholder views. The Committee comprises preparer representatives from various industrysectors, regulators, as well as technical and industry experts from small, medium and largeaccounting firms.Detailed comments on EDQuestion 1—Temporary exception to the accounting for deferred taxesWe agree with the IASB’s proposal to provide a mandatory temporary exception to the requirementsin IAS 12 under which an entity should neither recognise nor disclose information about deferred taxassets and liabilities related to Pillar Two income taxes.We acknowledge that entities need time to determine how to apply the principles and requirementsin IAS 12 to account for deferred taxes related to top-up tax, which in turn depends on howjurisdictions implement the Pillar Two model rules. The IASB also needs time to engage further withstakeholders and consider whether any action is needed to support the consistent application of IAS
12.Consequently, we agree with the IASB’s proposal for not specifying how long the temporaryexception would be in place in view of the time needed to monitor the development of the issue.Having said that, we recommend that the IASB schedule for activities in its work plan, includingmonitoring the enactment process of the Pillar Two model rules in different jurisdictions, analysingtheir impact and assessing whether additional standard-setting activities are required, so that thetemporary exception could be terminated at the appropriate time and that the accounting for incometaxes arising from the Pillar Two model rules could be clarified.Question 2—DisclosureMost of our respondents agree with the proposed new disclosures. A few respondents questionedthe reliability and usefulness of the information to be provided under the proposals. Theserespondents are concerned that any impact assessment entities make at this stage could only bebased on information that is not yet certain (for example, profit forecasts of different operations, theevolving Pillar Two model rules and how different jurisdictions enact the legislation). Hence, they areconcerned that the disclosures under paragraph 88C could be misleading and there could be legalimplications to the entities if the disclosures made by them are not the same as the actual outcome.Furthermore, we consider that the following areas can be clarified by means of guidance orillustrative examples to avoid inconsistent application of the proposals:
(i)
We understand that the ED focuses on addressing the stakeholders’ concerns on theaccounting for deferred taxes in the consolidated financial statements of the ultimate parententity of a group subject to the Pillar Two model rules. However, this is not clear to ourrespondents. We consider that the IASB should clarify the scope of the ED if it intends to focuson addressing the issue in the context of consolidated financial statements.In addition, our respondents questioned whether and how IAS 12 applies to top-up tax arisingfrom the Pillar Two model rules outside the context of consolidated financial statements of theultimate parent entity. For example, in the separate financial statements of the ultimate parententity where the ultimate parent is liable to pay the top-up tax, but the tax was triggered byanother entity of the group, the ED is not clear as to whether IAS 12 would apply to such case,and if so, which entity should make the proposed disclosures. Should they be made in theseparate financial statements of the ultimate parent entity, the group entity that triggered thetop-up tax or both? We suggest the IASB clarify this.AppendixPage 3 of 3(ii)
Paragraph 88C(a) requires the disclosure of information about Pillar Two legislation enactedor substantively enacted in jurisdictions in which the entity operates. Our respondents considerthat the ED is unclear as to the level of detail required for such proposal. Particularly, in respectof ‘information about the Pillar Two legislation’, it is not clear whether a detailed description ofthe mechanism through which the legislation works is required or whether disclosing a list ofjurisdictions where the Pillar Two legislation has come into effect would suffice.(iii)
A few respondents considered that there may be a practical difficulty in determining whichjurisdictions should be disclosed under the proposed disclosure in paragraph 88C(b). Take forexample an entity that is incorporated in the Cayman Islands and which does not have anyoperations there. The entity has an office in Hong Kong but the profit is not subject to tax inany jurisdiction in the world due to the application of double tax agreements and therefore hasan effective tax rate of zero. It is not clear whether the entity should disclose Hong Kong orCayman Islands under the proposed paragraph 88C(b) in this situation.(iv) Paragraph BC24(c) of the ED implies that the proposed disclosure in paragraph 88C(c) wouldbe required only if entities have made the assessments in preparing to comply with the PillarTwo legislation. However, our respondents considered that clarification on the requirement isnecessary, particularly whether a statement of fact is needed if entities have not made anyassessments, and the level of detail expected for entities that have made the assessments(e.g. bases for the assessment and assumptions).Question 3—Effective date and transitionWe support the proposed effective date and transition requirements for the reasons stated inparagraphs 27 – 28 of the Basis for Conclusions.Other commentsThe ED currently defines the ‘Pillar Two model rules’ in the Basis for Conclusions (BC1) instead ofin the body of the Standard (paragraph 4A). We consider that this term plays a pivotal role in thedevelopment of the proposals and should be defined in the body of the Standard. This can facilitatereaders to understand the meaning of the term when they first come across it in the body of theStandard and is also consistent with the presentation in other standards, e.g. IFRS 9 FinancialInstruments defines the term ‘Interest Rate Benchmark Reform’ in IFRS 9.6.8.2.~ End ~