MCA Amends Ind-AS 12 for Pillar Two Disclosures in Line with Global Tax Reform

[2025] 178 taxmann.com 357 (Article)

The OECD’s Pillar Two framework introduces a global minimum tax rate of 15% for large multinational enterprises (“MNEs”), aiming to curb tax base erosion and profit shifting to low-tax jurisdictions. The rules include mechanisms like the Income Inclusion Rule (“IIR”) and the Undertaxed Profits Rule (“UTPR”), along with Qualified Domestic Minimum Top-Up Taxes (“QDMTT”).

In a significant move aligning India’s financial reporting framework with global tax reforms, the Ministry of Corporate Affairs (“MCA”) has amended Ind-AS 12 to incorporate disclosure requirements related to the OECD’s Pillar Two model rules. The amendment, notified on 13 August, 2025, marks a pivotal step in India’s commitment to the Base Erosion and Profit Shifting (“BEPS”) 2.0 initiative.

With this amendment, India has now formally integrated these principles into its accounting standards through amendments to Ind-AS 12 – Income Taxes. In this article, we aim to summarise the amendments in a clear and concise manner.

1. Key aspects of the amendments to Ind-AS 12

• • • Firstly, the scope of the applicability of Ind-AS 12 has been expanded to cover the taxes under OECD’s Pillar Two framework [1]. The revised standard now clearly includes income taxes that arise from the implementation of Pillar Two rules, such as Qualified Domestic Minimum Top-up Taxes (QDMTTs). These types of taxes are grouped under a new category called “Pillar Two income taxes,” which ensures consistent accounting treatment and disclosure. This clarification helps entities better understand how to apply tax accounting standards to these new global tax measures.

Entities are now clearly instructed not to recognize or disclose deferred tax assets or liabilities that stem from Pillar Two income taxes. This change streamlines the accounting process by removing the complexity of deferred tax calculations related to these new tax rules. However, it places greater emphasis on transparency, requiring entities to provide detailed disclosures that help users of financial statements understand the potential impact of Pillar Two measures.

• •  The new disclosure requirements of the amended standard introduce a structured approach to transparency around Pillar Two income taxes. The amendment now requires entities to explicitly disclose that they have applied the exception from recognizing deferred tax assets and liabilities related to Pillar Two [2]. Notably, this amendment is effective immediately and will also have a retrospective effect [3] when read in conjunction with Ind-AS 8 which deals with disclosure of changes in accounting policies, changes in accounting estimates and corrections of error. This ensures clarity for users of financial statements about the accounting treatment adopted.
  • The Amendment further mandates that any current tax expense or income arising from Pillar Two legislation must be presented separately, allowing stakeholders to distinguish these amounts from other tax components and assess their specific impact on the entity’s financial performance [4].
  • The new provisions now address situations where Pillar Two legislation has been enacted but is not yet effective. In such cases, entities must disclose any known or reasonably estimable exposure to top-up taxes, helping users anticipate potential future tax impacts [5].
    To fulfill the disclosure requirements for this specific scenarios, the entities are required to make qualitative and quantitative disclosures. These include identifying the jurisdictions likely to be affected, estimating the proportion of profits that may be subject to top-up tax, and providing indicative changes in effective tax rates [6].

All the above disclosures are required for financial years ending March 2026 onwards [7]. The objective here is to give a comprehensive view of how Pillar Two rules could influence an entity’s tax profile and financial outcomes.

2. Implications for Indian Companies

This amendment is expected to impact large Indian MNEs with global operations, especially those operating in jurisdictions with low effective tax rates. While the exclusion of deferred tax simplifies accounting, the disclosure burden increases, requiring robust data systems and cross-border coordination.

To effectively manage the implications of Pillar Two legislation, tax and finance teams will need to take a proactive and strategic approach. This begins with closely monitoring developments across various jurisdictions, as the implementation timelines and specific rules may differ significantly from country to country. Staying informed will help teams anticipate changes and ensure compliance with evolving global tax standards.

In addition to tracking legislative updates, teams must assess their organization’s exposure to top-up taxes and conduct scenario analyses to understand potential financial impacts. These insights will be critical for internal planning and decision-making. Equally important is the need to communicate risks and anticipated effects to key stakeholders, including senior management, investors, and auditors. Clear and timely communication enhances transparency, fosters trust, and facilitates informed decision-making to the challenges posed by Pillar Two regulations.

• [1]  Newly inserted Para 4A of the amended Ind-AS 12
• [2] Newly inserted Para 88A of the amended Ind-AS 12
• [3] Newly inserted Para 98M (a) of the amended Ind-AS 12
• [4] Newly inserted Para 88B of the amended Ind-AS 12
• [5] Newly inserted Para 88C of the amended Ind-AS 12
• [6] Newly inserted Para 88D of the amended Ind-AS 12
• [7] Newly inserted Para 98M(b) of the amended Ind-AS 12

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