Read the transcript (PDF 115 KB)
(This article was published on 20 November 2023 and updated on 30 June 2025)*
Many countries have amended their local laws to introduce a global minimum top-up tax1 as part of the international tax reform (see KPMG BEPS 2.0 Tracker for an overview of legislative developments in countries around the world). This reform includes a two-pillar solution.
Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries. Pillar Two aims to ensure that large multinational groups pay at least the minimum rate of 15 percent on income arising in each jurisdiction in which they operate.
There are four mechanisms under Pillar Two that countries can adopt. Three mechanisms are active – the income inclusion rule (IIR), the undertaxed payment rule (UTPR) and a qualifying domestic minimum top-up tax (QDMTT) – and one is under development. In our view, all Pillar Two top-up taxes levied by tax authorities under the active mechanisms are generally income taxes accounted for under IAS 12 Income Taxes. This applies to all financial statements, including the consolidated financial statements of the ultimate or intermediate parent companies and the separate financial statements of group companies.
However, a mandatory exception applies under IAS 12 such that a company neither recognises nor discloses information about deferred tax assets and liabilities for Pillar Two taxes. Also, in our view, a company generally should not consider the impact of Pillar Two taxes when determining future taxable profits to assess recoverability of deferred tax assets arising under the domestic corporate income tax regime.
Some jurisdictions have implemented a QDMTT and the mechanisms for reporting, charging and settling this tax may be similar to those applied to tax-consolidated groups. IAS 12 does not provide specific guidance for such groups5. In our view, if the QDMTT mechanisms have all of the following features, then a company may apply the KPMG published accounting guidance for tax-consolidated groups (see Insights 3.13.1180–1200) in its separate or individual financial statements.
- All companies subject to QDMTT are located in the same tax jurisdiction.
- All companies report to the same tax authority.
- All companies are treated as a single tax reporting company, with a single ‘filing company’ submitting the QDMTT tax return to the tax authority.
- All companies are jointly and severally liable for the QDMTT – i.e. the tax authority can require other companies to pay the QDMTT if the company with primary responsibility does not meet its obligations.
Answering your questions
To help you in preparing your financial statements, we answer your questions on the key issues.
* Updated for the latest published and upcoming guidance in Insights into IFRS® (also referred to as Insights).
- Global minimum top-up tax under the new OECD Pillar Two rules. Also referred to here as Pillar Two taxes.
- GloBE – global anti-base erosion.
- A country may introduce a minimum tax that does not qualify under the GloBE rules.
- Under development.
- In some countries, tax-consolidation systems permit groups comprising a parent company and its wholly owned subsidiaries to elect to be treated as a single company for income tax purposes. IAS 12 does not provide specific guidance on this topic; however, Insights includes guidance on accounting for income taxes by individual companies in a tax group.
© 2025 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.