In addition to tax reporting requirements, there are also reporting requirements in the financial statements for periods starting 1 January 2024 for which there has been less publicity.
Impact on financial statements for groups within the scope
For a UK company which is a member of a group within the scope of Pillar 2, disclosure needs to be included in the tax note of the company financial statements.
If the group is liable for additional tax under Pillar 2, the disclosure should detail information that is known or can be reliably estimated, including:
Qualitative: How the company will be affected and in which jurisdictions an exposure arises.
Quantitative: The portion of profits subject the Pillar 2 income taxes, the average effective tax rate applicable to those profits and how the new taxes impact the effective tax rate.
Where information is not known or cannot be reliably estimated, the company should include a disclosure to that effect and information on its progress in assessing the Pillar Two exposure.
For a UK subsidiary that has no adjustment under Pillar 2, an example disclosure would be:
Pillar 2 legislation has been enacted or substantively enacted in certain jurisdictions in which the Group operates. The legislation will be effective for the Group’s financial year beginning on or after 1 January 2024. The Group is within the scope of the enacted or substantively enacted legislation and has performed an assessment of the Group’s potential disclosure to Pillar 2 income taxes. Based on the assessment, the effective tax rate determined under Pillar 2 legislation is above 15% in most of the jurisdictions in which the Group operates including the UK, and the Group does not expect a material exposure to Pillar 2 income taxes.
While the tax requirements of Pillar 2 have been well documented the requirements form financial statement disclosure have been less widely publicised. Understanding and ensuring your group’s financial statements include the disclosures required as a result of Pillar 2 is important to ensure your financial statements for 31 December 2024 year ends and beyond are compliant with UK GAAP.
In addition to tax reporting requirements, there are also reporting requirements in the financial statements for periods starting 1 January 2024 for which there has been less publicity.
Impact on financial statements for groups within the scope
For a UK company which is a member of a group within the scope of Pillar 2, disclosure needs to be included in the tax note of the company financial statements.
If the group is liable for additional tax under Pillar 2, the disclosure should detail information that is known or can be reliably estimated, including:
Qualitative: How the company will be affected and in which jurisdictions an exposure arises.
Quantitative: The portion of profits subject the Pillar 2 income taxes, the average effective tax rate applicable to those profits and how the new taxes impact the effective tax rate.
Where information is not known or cannot be reliably estimated, the company should include a disclosure to that effect and information on its progress in assessing the Pillar Two exposure.
For a UK subsidiary that has no adjustment under Pillar 2, an example disclosure would be:
Pillar 2 legislation has been enacted or substantively enacted in certain jurisdictions in which the Group operates. The legislation will be effective for the Group’s financial year beginning on or after 1 January 2024. The Group is within the scope of the enacted or substantively enacted legislation and has performed an assessment of the Group’s potential disclosure to Pillar 2 income taxes. Based on the assessment, the effective tax rate determined under Pillar 2 legislation is above 15% in most of the jurisdictions in which the Group operates including the UK, and the Group does not expect a material exposure to Pillar 2 income taxes.
While the tax requirements of Pillar 2 have been well documented the requirements form financial statement disclosure have been less widely publicised. Understanding and ensuring your group’s financial statements include the disclosures required as a result of Pillar 2 is important to ensure your financial statements for 31 December 2024 year ends and beyond are compliant with UK GAAP.
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Tax planning and advice for businesses
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13 January 2025
