Amendments to OIC Document 25 in the Context of the Pillar Two Model

On March 18, 2024, the Italian Accounting Standards Board (OIC) published the final version of amendments to national accounting principles. Among the amended documents, particular relevance is given to the changes introduced in amendments to OIC Document 25, titled “Imposte sul reddito,” as it is immediately applicable. The amendments concern the methods of accounting for income taxes resulting from the application of the OECD Pillar Two model, including the transitional provisions adopted regarding deferred taxation and the related disclosure to be provided in the Notes to the Financial Statements accompanying the Balance Sheet.

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Amendments to OIC Document 25 in the Context of the Pillar Two Model amendments to OIC Document 25

On March 18, 2024, the Italian Accounting Standards Board (OIC) published the final version of amendments to national accounting principles. Among the amended documents, particular relevance is given to the changes introduced in amendments to OIC Document 25, titled “Imposte sul reddito”(income taxes),  as it is immediately applicable. The amendments concern the accounting policies for income taxes resulting from the adoption of the OECD Pillar Two model, including the transitional provisions adopted for deferred taxes and the related disclosure to be provided in the Notes to the Financial Statements.. 

 

Adoption of the OECD Pillar Two Model in Italy 

In December 2022, Directive No. 2022/2523 was published in the European Official Journal, aimed at adopting the OECD’s Second Pillar model within the broader international tax reform of the Global Anti-Base Erosion Model Rules. The purpose of the model is to ensure a minimum level of taxation for large groups of companies, both multinational and national, by preventing tax competition between states and the race to lower tax rates. The minimum level of taxation is achieved  through the application of an additional tax if the effective tax rate in each jurisdiction does not reach 15%. In Italy, the Global Minimum Tax provisions  have been implemented by Legislative Decree No. 209/2023 (cf. Articles 8 to 60). These provisions apply to resident companies that are part of a multinational or national group with annual revenues, as shown in the consolidated financial statements, of at least €750 million; this threshold must be exceeded in at least two of the last four consecutive financial years immediately preceding the one to which the provisions relating to the Global Minimum Tax apply. Therefore, the provisions on global minimum tax generally apply from the financial years beginning on December 31, 2023, and thus from 2024 for entities with a calendar year-end. 

 

In this context, the OIC Foundation has introduced amendments to OIC No. 25 in order to take into account the tax burden of the Global Minimum Tax introduced by the OECD Pillar Two model.  

 

New Features Introduced by Amended OIC No. 25 

The elements of novelty introduced by the amendments to OIC No. 25 concern: 

  • the provision of a specific item in the income statement within which to record the taxes resulting from the application of the OECD Pillar Two model;
  • the temporary irrelevance for deferred taxation purposes of the taxes recorded as a result of the application of the OECD Pillar Two model;
  • the specific disclosure to be provided in the Notes to the Financial Statements.

 

In more detail, it has been clarified, first of all, that the current taxes resulting from  the implementation of the above mentioned OECD model must be reported in a separate line, called “Second Pillar Current Taxes” within item 20 of the income statement “Income Taxes for the Period, Current, Deferred, and Anticipated.” 

Secondly, the OIC Foundation has introduced a temporary rule clarifying that the provisions resulting from the OECD Second Pillar model do not affect deferred taxes. This decision was taken in order to address the numerous doubts raised by practitioners about the potential impact of the introduced provisions on the financial statements. Considering the complexity of the subject matter and the difficulty in resolving these issues in the short term, in line with what has been done internationally by the IASB, the Italian Accounting Standards Board has frozen the potential effects that the application of the second pillar model rules could have on deferred taxation. 

Lastly, with regard to the disclosure to be provided in the Notes to the Financial Statements, OIC 25 has introduced the obligation, for companies preparing financial statements in ordinary form, to provide information regarding the inclusion of the company within the scope of application of the Second Pillar model and a description of the progress of the implementation process of such model. Information must also be provided on the portion of the income taxes resulting from the application of the Second Pillar model attributable to the company’s own income and how much is attributable to the income of other companies belonging to the same group. 

 

Impact of Amendments on the 2023 Financial Statements 

Any effects resulting from the application of the amendments to OIC No. 25 analysed thus far apply immediately and are recognized in the financial statements retrospectively in accordance with OIC 29. This, considering the effectiveness of the provisions on the Global Minimum Tax, means that the effects in terms of current taxation will have repercussions for the first time on the 2024 financial statements, for entities with calendar year-ends. 

However, entities that: 

  • prepare financial statements in ordinary form; and
  • close the financial year after the entry into force of the provisions relating to the application of the global minimum tax introduced by the Pillar Two model but before the effective date of those provisions (i.e., 2024)

must provide the disclosure in the notes to the financial statements already in the 2023 financial statements (for entities with calendar year-ends), considering that Legislative Decree No. 209/2023 entered into force on December 29, 2023, and that the provisions on the Global Minimum Tax generally apply from the financial years beginning on December 31, 2023. 

In view if the imminent approval of the financial statements, it is necessary to promptly gather the required information and thus provide adequate disclosure in the notes to the financial statements. 

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