Questions on Applicability of U.S. Deferred Tax Accounting to OECD Pillar Two Rules

FASB staff have been fielding questions about the applicability of deferred tax accounting to the minimum tax described in the Global Anti-Base Erosion (GloBE) rules, Technical Director Hillary Salo told the board on February 1, 2023, after general discussions. The GloBE rules and associated commentary were released as part of the Pillar Two initiative by the Organisation for Economic Co-operation and Development (OECD). The OECD’s objective with Pillar Two is for large international operating businesses to pay a minimum level of tax through a series of rules that include a global minimum corporate tax of 15% of adjusted net income. The GloBE rules provide a template that jurisdictions may use when developing and enacting their domestic tax laws and are intended to be enacted via domestic tax law in their respective countries. Accounting firms, in technical inquiries, have asked FASB staff whether an entity should record deferred taxes for the GloBE minimum tax by recognizing GloBE-specific deferred taxes or by remeasuring existing deferred taxes at the GloBE minimum tax rate. “The FASB staff believe the authoritative literature in paragraphs 740-10-30-10 through 30-12 and 740-10-55-31 and 55-32 support this conclusion,” Salo said. The GloBE minimum tax should be viewed as a separate but parallel tax system that is imposed to ensure that certain taxpayers pay at least a minimum amount of income tax, she said. Additionally, the FASB staff observed that “the potential obligation for GloBE taxes in future years is dependent on the generation of future adjusted net income.”

Firms Back Proposal on Concept of a Reporting Entity

Accounting firms told FASB they generally support its October 2022 proposal to provide a new chapter in the conceptual framework on the concept of “the reporting entity.” The proposal, Statement of Financial Accounting Concepts 2022-ED200, “Concepts Statement No. 8, Conceptual Framework for Financial Reporting Chapter 2: The Reporting Entity,” received 13 comment letters by the January 16 deadline. Generally, most firms agreed with the proposed definition that a reporting entity is “a circumscribed area of economic activities that can be represented by general purpose financial reports that are useful to existing and potential investors, lenders, and other resource providers in making decisions about providing resources to the entity.” “We support the definition not being focused only on distinct legal entities as a reporting entity can span several legal entities and agree the focus should be on economic activities that can be distinguished from those of other entities,” said Rudolf Bless, chair of Financial Executives International’s Committee on Corporate Reporting (CCR) in a January 13 comment letter. “The proposed description and features are sufficiently concise to provide guidance on how to think about what qualifies as a reporting entity yet appropriately high level to provide for the use of judgment to determine information that would be useful to investors, lenders, and other resource providers,” he wrote. The proposal was issued to provide Chapter 2 in the conceptual framework, which  FASB uses to guide its standards setting efforts. The term ‘reporting entity’ is referenced in various parts of the framework but it has lacked a definition and descriptive information.


Technical Guide on Ethics Now Covers NOCLAR

The AICPA added section 90, “Responding to Noncompliance With Laws and Regulations (NOCLAR)” to its technical questions and answers (TQA) guide related to ethics provisions that apply to CPAs. The TQA addition was published on January 25. The guide answers almost 30 questions in TQA section 90. Among them are questions about the level of guidance in the new interpretations, interaction with other laws and regulations, and clearly inconsequential matters. The first question asks whether the new “Responding to Noncompliance with Laws and Regulations” interpretations under the “Integrity and Objectivity Rule” (ET sec. 1.180.010 and 2.180.010) represents general guidance, or whether it impose specific responsibilities when a CPA becomes aware of NOCLAR or suspected NOCLAR. The guide answers that the interpretations for members in business and members in public practice contain requirements with which a member must comply. “These requirements (designated by the word ‘should’) vary depending on whether the member is performing an audit or review of financial statements, is providing another professional service, or is a member in business,” the guide states.