Will International Financial Reporting Standards Help Roll Out Pillar One?3rd March 2022
By the end of October, nearly 140 countries had signed on for the OECD’s Pillar One and Pillar Two tax proposals. But who would have guessed that getting almost the whole world to agree to a global tax rewrite would be the easy part? Here it is just a few months later, and negotiations on implementing Pillar One and Pillar Two are already proving challenging. To help ease the process, at the end of last month, the OECD released draft rules for rolling out Pillar One, which includes using international financial reporting standards (IFRS) as opposed to Generally Accepted Accounting Principles (GAAP). Pillar One reallocates a portion of profits made by the world’s top 100 companies based on where customers are located as opposed to where the company has a physical presence. The OECD is directing multinational companies to use international financial reporting standards (IFRS) to calculate profits subject to allocation (Amount A) under the new tax deal. The thinking is, the IFRS will streamline the process and help prevent doubling up on the same income. Since many companies that meet Amount A’s threshold are already preparing financials according to the international standard, it seems the logical way to go. Companies running numbers under GAAP, however, aren’t totally out of luck—they’ll just have to prove that those results are in line with results under IFRS. Is it a step in the right direction? We’ll see how the public feels after March 4—the OECD’s deadline for feedback.