Year-end clearance meeting. The group tax director slides a 12-tab spreadsheet across the table and tells you the Singapore subsidiary’s GloBE ETR came out at 7.8 percent. He says the top-up tax is €1.23 million and the file already has a safe harbour memo for the other five jurisdictions. The review partner asks if you have tested the Country-by-Country Reporting data the safe harbour is built on. Nobody on the engagement team understands the GloBE rules yet. Including us. Including the client.
The first GloBE Information Return for calendar-year groups was due on 30 June 2026. In our experience, in-scope clients have either filed or are still scrambling. Pillar Two created a category of tax that sits outside the normal IAS 12 deferred tax framework and depends on calculations most audit teams have never reviewed. The IAS 12 amendments tell you not to recognise deferred tax on it. They do not tell you how to audit the current tax charge when it arrives.
The IASB’s May 2023 amendments to IAS 12 provide a mandatory temporary exception from recognising deferred taxes arising from Pillar Two legislation, while requiring specific disclosures about the entity’s exposure to GloBE top-up taxes and the average effective tax rate applicable to those profits.
Key Takeaways
- How the IAS 12 amendments (May 2023) change what you test in the income tax provision for in-scope entities
- What the transitional CbCR safe harbour means for your audit and why the accuracy of the CbCR data matters
- How to evaluate a client’s Pillar Two disclosure under the IAS 12 amendment requirements
- What audit procedures to perform on the GloBE Information Return and the QDMTT calculation
In this guide
- What Pillar Two means for the financial statements you audit
- The IAS 12 amendments: what changed for auditors
- Safe harbours and the CbCR data quality problem
- Worked example: auditing Pillar Two at Van der Berg Holding N.V.
- Audit procedures for the GloBE calculation
- Practical checklist for your current engagement
- Common mistakes
What Pillar Two means for the financial statements you audit
Pillar Two applies to multinational groups with consolidated revenue of at least €750 million in at least two of the four preceding fiscal years. In the Netherlands, the Wet minimumbelasting 2024 took effect on 31 December 2023, implementing both the Qualified Domestic Minimum Top-up Tax (QDMTT) and the Income Inclusion Rule (IIR). The Undertaxed Profits Rule (UTPR) followed for fiscal years starting on or after 31 December 2024.
The mechanics matter for your audit work. The GloBE rules require in-scope groups to calculate an effective tax rate (ETR) for each jurisdiction where they operate. If the jurisdictional ETR falls below 15%, a top-up tax is due. This top-up tax is collected through one of the charging mechanisms (QDMTT, IIR, or UTPR), depending on where the low-taxed entity sits in the group structure and which jurisdictions have implemented which rules.
For a Dutch parent auditing under ISA, the Pillar Two tax is a current tax expense in the period it relates to. It is not a deferred tax item. The IASB was explicit. The May 2023 amendments to IAS 12 introduced a mandatory temporary exception prohibiting recognition of deferred taxes arising from Pillar Two legislation. Your audit of the income tax provision now has two components for in-scope entities: the standard IAS 12 current and deferred tax calculation (which ignores Pillar Two), and a separate Pillar Two current tax charge based on the GloBE calculation.
The Dutch statutory CIT rate of 25.8% exceeds 15%, so you might assume Dutch entities will never trigger a top-up tax domestically. That assumption is wrong. The GloBE ETR is calculated differently from the statutory ETR. Adjustments to GloBE income include items like stock-based compensation (excluded from GloBE income under certain conditions) and revaluations (excluded for fair value accounting). The Substance-based Income Exclusion (SBIE) further carves out a return on tangible assets and payroll. An entity with tax incentives such as the Dutch innovation box (which taxes qualifying IP income at an effective rate of 9%) could have a GloBE ETR below 15% despite a statutory rate of 25.8%.
The IAS 12 amendments: what changed for auditors
The IASB published International Tax Reform: Pillar Two Model Rules (Amendments to IAS 12 ) on 23 May 2023. EFRAG endorsed the amendments for EU application shortly after. The amendments do two things that directly affect your audit procedures.
First, the mandatory temporary exception. Entities must not recognise or disclose deferred tax assets (DTAs) and liabilities (DTLs) related to Pillar Two income taxes. This applies to all taxes arising from enacted or substantively enacted legislation implementing the OECD’s Pillar Two model rules, including QDMTT. The exception is mandatory, not elective. If your client has recognised a DTA or DTL that arises from Pillar Two legislation, it must be derecognised. At firms like ours this is rare (the timing of enactment and the IASB’s speed in issuing the amendments prevented most entities from ever recognising Pillar Two deferred taxes), but verify it during your review of the deferred tax roll-forward.
Second, the disclosure requirements. When Pillar Two legislation is enacted or substantively enacted but not yet in effect, the entity must disclose known or reasonably estimable information about its exposure, including qualitative information about which jurisdictions are affected and where top-up tax may arise. When Pillar Two legislation is in effect (which it now is, for fiscal years starting on or after 31 December 2023 in the Netherlands and most EU member states), the entity must separately disclose its current tax expense related to Pillar Two income taxes.
You now test two things in the tax note that didn’t exist before Pillar Two. The first is the completeness and accuracy of the separate Pillar Two current tax disclosure. The second is the adequacy of the qualitative and quantitative exposure information. If the entity relies on safe harbours to treat the top-up tax as zero, you still need to test whether the safe harbour conditions are actually met. A team that prints the tax adviser’s memo, ticks the ETR column against a CbCR PDF, and signs the section off as "appears reasonable. Waive further pursuit." has not audited the safe harbour.
Safe harbours and the CbCR data quality problem
The OECD introduced transitional safe harbour rules in December 2022 to reduce compliance costs during the initial years. The transitional Country-by-Country Reporting (CbCR) safe harbour allows a group to treat the top-up tax as deemed zero for a jurisdiction if one of four conditions is met based on qualifying CbCR data: the jurisdiction’s total revenue is below €10 million and profit before tax (PBT) is below €1 million (de minimis test); the jurisdiction’s simplified ETR meets or exceeds a transition rate (15% for 2024, 16% for 2025, 17% for 2026); or the jurisdiction has no excess profits after the substance-based income exclusion (routine profits test); or the group qualifies for a permanent safe harbour.
The safe harbour creates a direct audit problem. It relies on CbCR data, and CbCR data has historically not been subject to rigorous audit procedures. As the Forvis Mazars US Pillar Two presentation noted, most external auditors have not previously reviewed CbCR data in detail, because the CbCR was a tax authority reporting obligation with no direct financial statement impact. That changed when the safe harbour tied the CbCR to the Pillar Two tax calculation. If the CbCR data is wrong and the entity loses safe harbour eligibility, a full GloBE calculation is required, potentially producing a material top-up tax that was not provided for.
You need to perform procedures on the CbCR data when the client relies on the transitional safe harbour. At minimum, reconcile the CbCR revenue and PBT figures for the Dutch jurisdiction to the audited FS. If you are the group auditor, request the same reconciliation from component auditors for material foreign jurisdictions. Discrepancies between the CbCR and the FS are a red flag that the safe harbour analysis may be based on unreliable data. The file should tell a story: why this jurisdiction qualifies, which CbCR line you tied back, which component auditor confirmed the numbers, and what you did when the numbers did not agree.
The transitional CbCR safe harbour applies for fiscal years starting on or before 31 December 2026 and ending before 1 July 2028. After that, groups must perform full GloBE calculations unless a permanent safe harbour (the simplified ETR safe harbour or the recently announced side-by-side safe harbour) applies. The OECD published the side-by-side package in January 2025, introducing a new framework effective for fiscal years starting on or after 1 January 2026 that may significantly reduce compliance for groups headquartered in qualifying jurisdictions. For 2024 and 2025, full-scope GloBE compliance remains required regardless of later elections.
Worked example: auditing Pillar Two at Van der Berg Holding N.V.
Client scenario: Van der Berg Holding N.V. is the Dutch ultimate parent of a group with consolidated revenue of €1.1 billion. The group operates in six jurisdictions: Netherlands, Germany, Belgium, Poland, the United Kingdom, and Singapore. The group reports under IFRS. Fiscal year end: 31 December 2025. The Singapore subsidiary benefits from a tax incentive that reduces its effective statutory rate to 8% on qualifying income. The group’s tax advisor has applied the transitional CbCR safe harbour for all jurisdictions except Singapore, where a full GloBE calculation was performed.
Step 1: Identify in-scope entities and jurisdictions
The group exceeds the €750 million revenue threshold. All six jurisdictions are in scope. The Wet minimumbelasting 2024 applies to the Dutch parent. Germany, Belgium, Poland, and the UK have each implemented domestic Pillar Two legislation effective from 2024 (IIR and QDMTT in all four, with UTPR from 2025).
Documentation note: Record the scoping analysis in your tax WP. List each jurisdiction, the applicable Pillar Two mechanism (QDMTT, IIR, or UTPR), and whether the entity applied a safe harbour or performed a full GloBE calculation.
Step 2: Test the safe harbour application for the five non-Singapore jurisdictions
The tax advisor applied the simplified ETR test from the transitional CbCR safe harbour. For fiscal year 2025, the transition rate is 16%. You need to verify that the simplified ETR for each jurisdiction equals or exceeds 16%.
Obtain the CbCR data for each jurisdiction. Reconcile the Dutch figures to the audited FS. The CbCR shows Dutch PBT of €42 million and covered taxes of €9.8 million, producing a simplified ETR of 23.3%. This exceeds 16%. Safe harbour applies.
For Germany, the CbCR shows PBT of €28 million and covered taxes of €5.1 million. Simplified ETR: 18.2%. Above 16%. Safe harbour applies.
For Poland, the CbCR shows PBT of €3.8 million and covered taxes of €0.5 million. Simplified ETR: 13.2%. Below the 16% transition rate. The safe harbour does not apply. The tax advisor must perform a full GloBE calculation for Poland or apply one of the alternative tests.
Documentation note: This is the finding. The tax advisor’s safe harbour analysis concluded that all non-Singapore jurisdictions qualified, but Poland does not pass the simplified ETR test at the 16% rate. Raise this with management and request either the de minimis test calculation, the routine profits test, or a full GloBE calculation for Poland.
Step 3: Evaluate the full GloBE calculation for Singapore
The Singapore subsidiary earned €18 million of GloBE income and paid €1.4 million of covered taxes. The GloBE ETR before the SBIE is 7.8%. After applying the substance-based income exclusion (5% of eligible payroll costs of €6 million plus 5% of eligible tangible assets of €12 million = €0.3 million + €0.6 million = €0.9 million), the excess profit is €18 million minus €0.9 million = €17.1 million. The top-up tax percentage is 15% minus 7.8% = 7.2%. The jurisdictional top-up tax is 7.2% multiplied by €17.1 million = €1.23 million.
Under the IIR, this top-up tax is charged to Van der Berg Holding N.V. in the Netherlands. The €1.23 million should appear as a current tax expense in the consolidated income tax note, disclosed separately as Pillar Two income tax per the IAS 12 amendments.
Documentation note: Record the GloBE calculation inputs, the SBIE calculation, the resulting top-up tax, and the charging mechanism applied. Agree the covered taxes figure to the Singapore subsidiary’s audited or reviewed FS. Verify the SBIE inputs (payroll costs and tangible asset values) against underlying records. Confirm the top-up tax is recognised in the correct period and disclosed separately per the IAS 12 amendments.
Step 4: Assess the disclosure
The IAS 12 amendments require Van der Berg to disclose the current tax expense related to Pillar Two separately. The note should show the €1.23 million Singapore top-up tax as a distinct line item or a clearly identified component within the income tax reconciliation. It should also disclose qualitative information about the jurisdictions where Pillar Two exposure exists (Singapore, and potentially Poland if the GloBE calculation produces a top-up tax there).
The entity should also disclose the proportion of profits subject to Pillar Two and the average ETR applicable to those profits. For Singapore, 100% of profits are subject, and the ETR is 7.8%. If Poland also triggers a top-up tax, include that jurisdiction as well.
Documentation note: Review the income tax note for compliance with the IAS 12 amendment disclosure requirements. Verify the separate Pillar Two current tax disclosure and the qualitative jurisdictional information. Check the quantitative ETR and profit proportion data against your WPs.
Audit procedures for the GloBE calculation
Auditing the GloBE calculation is new territory for most audit teams. The calculation starts from the group’s consolidated FS (or qualifying FS in each jurisdiction) and then applies a series of adjustments to arrive at GloBE income and covered taxes per jurisdiction.
For covered taxes, the starting point is the income tax expense from the FS. The preparer then adjusts to exclude items that do not qualify as covered taxes under the GloBE rules (such as uncertain tax position accruals that do not relate to current or prior periods, taxes paid by one entity on behalf of another in a different jurisdiction, withholding taxes on intercompany distributions, and deferred tax expense).
Your audit procedures should focus on four areas.
Area 1: Data inputs
GloBE income starts from the consolidated FS. Verify that the jurisdictional allocation of income matches the group’s intercompany elimination and consolidation journals. If entities in different jurisdictions use different local accounting standards, the GloBE rules require adjustments to align with the financial accounting standard used in the consolidated FS. Test the adjustments.
Area 2: Covered taxes
This is the numerator of the ETR calculation. Agree the current tax expense for each jurisdiction to the respective entity’s FS or tax returns. Exclude items that the GloBE rules do not treat as covered taxes. The most common exclusion is the deferred tax expense (remember, the GloBE ETR uses a specific definition of covered taxes that includes some deferred tax adjustments under Article 4.4 but excludes others).
Area 3: SBIE
The substance-based income exclusion removes a return on tangible assets and payroll from the excess profit calculation. For fiscal year 2025, the SBIE rates are 7.8% of eligible payroll costs and 6.6% of eligible tangible asset carrying values (these rates decrease annually during a ten-year transition period, reaching 5% for both by 2033). Verify the payroll data against payroll records and the tangible asset values against the fixed asset register or FS.
Area 4: Top-up tax allocation
The IIR charges the top-up tax to the parent entity. For the UTPR, the tax is allocated to entities in UTPR-implementing jurisdictions based on a formula. A QDMTT keeps the top-up tax in the low-taxed jurisdiction itself. Verify which mechanism applies for each low-taxed jurisdiction and confirm the allocation is consistent with the enacted legislation.
If the complexity exceeds your team’s competence, ISA 620 applies. The GloBE calculation involves tax law and transfer pricing concepts (for the jurisdictional allocation of income), plus actuarial-type calculations for the SBIE and cross-border consolidation adjustments. In our experience, mid-tier firms will need to involve a Pillar Two specialist, either from within the firm’s tax practice or externally. Document the decision per ISA 620.12 .
Practical checklist for your current engagement
- Determine whether Pillar Two applies. Check the group’s consolidated revenue against the €750 million threshold for the preceding four fiscal years. If the group exceeds the threshold in at least two of the four years, Pillar Two is in scope (GloBE Model Rules, Article 1.1).
- Confirm the entity has applied the mandatory IAS 12 temporary exception. No DTAs or DTLs should exist that relate to Pillar Two legislation. Review the deferred tax roll-forward for any Pillar Two-related items.
- If the entity relies on a safe harbour, test the safe harbour conditions. For the transitional CbCR safe harbour, reconcile the CbCR data to audited FS for each material jurisdiction. Verify that the simplified ETR meets or exceeds the transition rate for the relevant year (15% for 2024, 16% for 2025, 17% for 2026).
- For jurisdictions where a full GloBE calculation was performed, review the calculation for GloBE income, covered taxes, SBIE, and the resulting top-up tax. Agree inputs to underlying financial data. Assess the reasonableness of adjustments from consolidated FS figures to GloBE income.
- Review the income tax note for separate Pillar Two current tax disclosure and the required qualitative and quantitative information about jurisdictional exposure per the IAS 12 amendments.
- Assess whether a Pillar Two specialist is required under ISA 620 . If you engaged one, evaluate their competence and objectivity per ISA 620.12 and document how you used their work.
Common mistakes
- Assuming that a statutory CIT rate above 15% means no Pillar Two exposure. The GloBE ETR is calculated on a different base from the statutory rate. Tax incentives (the Dutch innovation box, Belgian patent income deduction, Polish special economic zone relief, Singapore pioneer status) can reduce the GloBE ETR below 15% even when the headline rate is far higher.
- Relying on the transitional CbCR safe harbour without verifying the underlying CbCR data. The CbCR was not designed as a tax liability calculation tool. Data quality issues that were tolerable when the CbCR was a risk assessment filing become material when the safe harbour ties CbCR figures to the top-up tax calculation.
- Omitting the separate Pillar Two current tax disclosure required by the IAS 12 amendments. The requirement is to disclose the Pillar Two tax expense separately from the standard income tax expense. Burying it in a single-line income tax expense figure does not comply with the amendment.
- Waiving further pursuit after a superficial tie-back. A reviewer who sees the engagement team signed off the Singapore GloBE calc with nothing more than a rate comparison will call it a finding. The WPs need the SBIE inputs traced to payroll and the fixed asset register.
Related content
- Pillar Two glossary entry for a concise explanation of the IIR, UTPR, and QDMTT mechanisms
- Financial ratio calculator for computing effective tax rates across jurisdictions to identify potential GloBE exposure
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Frequently asked questions
What does the IAS 12 mandatory temporary exception for Pillar Two mean?
The May 2023 amendments to IAS 12 introduced a mandatory temporary exception prohibiting recognition of deferred taxes arising from Pillar Two legislation. Entities must not recognise or disclose deferred tax assets and liabilities related to Pillar Two income taxes. The exception is mandatory, not elective, and applies to all taxes arising from enacted or substantively enacted legislation implementing the OECD’s Pillar Two model rules, including QDMTT.
How do you audit the transitional CbCR safe harbour?
Reconcile the CbCR revenue and profit before tax figures for each material jurisdiction to the audited financial statements. Verify that the simplified ETR meets or exceeds the transition rate for the relevant year (15% for 2024, 16% for 2025, 17% for 2026). Discrepancies between the CbCR and the financial statements indicate that the safe harbour analysis may be based on unreliable data.
Can a statutory CIT rate above 15% still trigger a Pillar Two top-up tax?
Yes. The GloBE ETR is calculated on a different base from the statutory rate. Tax incentives such as the Dutch innovation box (effective rate of 9%), the Belgian patent income deduction, or Singapore pioneer status can reduce the GloBE ETR below 15% even when the headline statutory rate is far higher.
What are the four audit focus areas for the GloBE calculation?
The four areas are: (1) data inputs, verifying the jurisdictional allocation of GloBE income; (2) covered taxes, agreeing the current tax expense per jurisdiction; (3) the substance-based income exclusion (SBIE), verifying payroll and tangible asset inputs; and (4) top-up tax allocation, confirming which mechanism (IIR, UTPR, or QDMTT) applies for each low-taxed jurisdiction.
When does the transitional CbCR safe harbour expire?
The transitional CbCR safe harbour applies for fiscal years starting on or before 31 December 2026 and ending before 1 July 2028. After that, groups must perform full GloBE calculations unless a permanent safe harbour (the simplified ETR safe harbour or the side-by-side safe harbour published by the OECD in January 2025) applies.
Further reading and source references
- IAS 12 , Income Taxes (as amended May 2023): the source standard governing the mandatory temporary exception and Pillar Two disclosure requirements.
- OECD GloBE Model Rules (December 2021, updated 2023–2025): the international framework defining top-up tax calculations, safe harbours, and the SBIE.
- Wet minimumbelasting 2024: the Dutch implementation of Pillar Two, covering QDMTT, IIR, and UTPR.
- ISA 620 , Using the Work of an Auditor’s Expert: applicable when GloBE calculation complexity requires specialist involvement.