The changes aim to align India’s accounting framework with the OECD’s global minimum tax regime under the Pillar Two model rules. The VakilKaro Brief: MCA Updates AS 22 to Reflect OECD Pillar Two Global Tax Reforms The Update The MCA amended AS 22 to address the accounting treatment of income taxes arising from the OECD Pillar Two global minimum tax framework.
The Ministry of Corporate Affairs (MCA) has introduced amendments to Accounting Standard (AS) 22 through the Companies (Accounting Standards) Amendment Rules, 2026. The changes aim to align India’s accounting framework with the OECD’s global minimum tax regime under the Pillar Two model rules.
Key Takeaways
- The changes aim to align India’s accounting framework with the OECD’s global minimum tax regime under the Pillar Two model rules.
- The VakilKaro Brief: MCA Updates AS 22 to Reflect OECD Pillar Two Global Tax Reforms The Update The MCA amended AS 22 to address the accounting treatment of income taxes arising from the OECD Pillar Two global minimum tax framework.
- The update brings India’s accounting framework in line with the OECD’s international tax reform known as the Pillar Two model rules, which establish a global minimum tax regime for multinational enterprises.
- What is the OECD Pillar Two Framework The OECD Pillar Two rules form part of the global tax reform initiative aimed at preventing multinational corporations from shifting profits to low-tax jurisdictions.
- As global minimum tax rules begin to take effect, companies must carefully evaluate their tax exposure and ensure that financial statements reflect the requirements of the updated accounting standard.
The VakilKaro Brief: MCA Updates AS 22 to Reflect OECD Pillar Two Global Tax Reforms
The Update
The MCA amended AS 22 to address the accounting treatment of income taxes arising from the OECD Pillar Two global minimum tax framework.
The Impact
Companies will not recognise deferred tax assets or liabilities related to Pillar Two taxes but must disclose their exposure to such taxes.
The Action
Companies and auditors must update tax accounting practices and prepare new disclosures for financial statements beginning FY 2025–26.
Background of the Amendment
The Ministry of Corporate Affairs issued a notification on 10 March 2026 introducing amendments to the Companies (Accounting Standards) Rules, 2021.
The amendment modifies Accounting Standard (AS) 22, which governs accounting for taxes on income. The changes were made under the powers granted by Section 133 read with Section 469 of the Companies Act, 2013.
The update brings India’s accounting framework in line with the OECD’s international tax reform known as the Pillar Two model rules, which establish a global minimum tax regime for multinational enterprises.
What is the OECD Pillar Two Framework
The OECD Pillar Two rules form part of the global tax reform initiative aimed at preventing multinational corporations from shifting profits to low-tax jurisdictions.
Under this framework, multinational enterprises are required to pay a minimum effective tax rate of 15 percent on their global income.
If a company pays less than the minimum tax rate in a particular jurisdiction, additional taxes known as “top-up taxes” may be imposed to bring the effective rate up to the required threshold.
These taxes are referred to as Pillar Two income taxes under the new amendment to AS 22.
Key Amendments Introduced in AS 22
The MCA notification introduces several important changes to AS 22 to address the accounting treatment of Pillar Two taxes.
The most significant change is the introduction of a new paragraph that provides an exception to the recognition and disclosure of deferred tax assets and liabilities related to Pillar Two income taxes.
The key amendments are summarised below:
Amendment Explanation
Recognition exception Companies should not recognise deferred tax assets or liabilities related to Pillar Two income taxes
Disclosure of exception Companies must disclose that they have applied the exception
Current tax reporting Current tax expense related to Pillar Two taxes must be disclosed separately
Exposure disclosure Companies must disclose their exposure to potential Pillar Two taxes
These changes are intended to simplify accounting treatment while ensuring transparency regarding global tax exposure.
Disclosure Requirements Introduced
The amended AS 22 introduces several new disclosure requirements to help users of financial statements understand the impact of Pillar Two legislation.
Companies must disclose that they have applied the exception relating to deferred tax recognition for Pillar Two taxes.
They must also disclose the current tax expense or income related to Pillar Two taxes separately in their financial statements.
In addition, where Pillar Two legislation has been enacted or is expected to come into effect, companies must provide information that helps stakeholders understand their exposure to these taxes.
The disclosures may include qualitative or quantitative information such as:
• The jurisdictions where the company may be exposed to Pillar Two taxes
• The proportion of profits potentially subject to the minimum tax rules
• The average effective tax rate applicable to those profits
• An estimate of how the effective tax rate would change if the Pillar Two rules were already in force
However, small and medium-sized companies are exempt from certain disclosure requirements related to exposure estimates.
Applicability and Effective Date
The amendment introduces a phased implementation approach.
The recognition exception and related disclosure must be applied immediately upon issuance of the amendment.
However, the detailed disclosure requirements relating to Pillar Two tax exposure will apply only to annual reporting periods beginning on or after 1 April 2025.
Companies are not required to provide these disclosures for interim reporting periods ending on or before 31 March 2026.
Implications for Companies and Auditors
The amendment has important implications for corporate financial reporting and tax disclosures.
Companies with multinational operations will need to assess their exposure to Pillar Two income taxes across jurisdictions.
Finance teams must evaluate how the global minimum tax rules could affect their effective tax rate and prepare appropriate disclosures in financial statements.
Auditors will also need to verify whether companies have properly applied the recognition exception and complied with the new disclosure requirements.
These changes highlight the growing influence of global tax reforms on domestic accounting standards.
Conclusion
The MCA’s amendment to AS 22 represents an important step in aligning India’s accounting standards with international tax developments.
By introducing a recognition exception for deferred taxes related to Pillar Two income taxes and requiring additional disclosures, the amendment aims to balance simplicity in accounting with transparency in financial reporting.
As global minimum tax rules begin to take effect, companies must carefully evaluate their tax exposure and ensure that financial statements reflect the requirements of the updated accounting standard.
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MCA Amends AS 22 to Align with OECD Pillar Two Global Minimum Tax Rules+
The changes aim to align India’s accounting framework with the OECD’s global minimum tax regime under the Pillar Two model rules. The VakilKaro Brief: MCA Updates AS 22 to Reflect OECD Pillar Two Global Tax Reforms The Update The MCA amended AS 22 to address the accounting treatment of income taxes arising from the OECD Pillar Two global minimum tax framework.