AS-22 Amendment 2026: OECD Pillar Two Guide for MNEs

The Ministry of Corporate Affairs (MCA) officially notified the Companies (Accounting Standards) Amendment Rules, 2026 via Notification No. G.S.R. 169(E) on March 10, 2026. This statutory update fundamentally amends Accounting Standard (AS) 22—Accounting for Taxes on Income—to harmonize Indian GAAP reporting with the Organization for Economic Co-operation and Development (OECD) Pillar Two Model Rules. The primary objective of the OECD Pillar Two framework is the enforcement of a Global Minimum Tax (GMT) regime, establishing a 15% minimum Effective Tax Rate (ETR) on profits earned by large Multinational Enterprises (MNEs) with consolidated global annual revenues exceeding EUR 750 million.

Prior to this amendment, Indian accounting standards lacked explicit guidance on accounting for top-up taxes, Qualified Domestic Minimum Top-Up Taxes (QDMTT), and global Income Inclusion Rules (IIR). The notification inserts Paragraph 2A into AS-22, clarifying that the standard applies to income taxes arising from Pillar Two tax legislation. However, recognizing the immense practical complexity and temporal mismatches across global tax jurisdictions, the MCA has introduced a mandatory temporary exception regarding deferred tax recognition.

Under this update, Indian constituent entities of in-scope MNE groups are strictly prohibited from recognizing or disclosing deferred tax assets and liabilities related to Pillar Two income taxes. Instead, compliance focuses heavily on enhanced financial statement disclosures under newly introduced Paragraphs 32A through 32D. CFOs, tax directors, and statutory auditors must adapt their financial reporting infrastructure immediately. While the mandatory deferred tax exception applies retrospectively upon notification, qualitative and quantitative financial statement disclosure requirements take effect for reporting periods beginning on or after April 1, 2025. Understanding these statutory changes is essential for maintaining corporate governance standards and avoiding compliance failures during statutory audits.

Why Was AS-22 Amended? What Has Changed — Explained Simply

The Ministry of Corporate Affairs (MCA) amended AS-22 in response to the OECD Pillar Two Model Rules, which introduced a Global Minimum Tax (GMT) framework. Under Pillar Two, multinational enterprise (MNE) groups with consolidated global annual revenues exceeding EUR 750 million must pay a minimum effective tax rate of 15% in every jurisdiction where they operate.

As global tax authorities enact Pillar Two laws at varying timelines, India's existing AS-22 standard required immediate structural updates to address complex cross-border top-up tax liabilities. Rather than allowing financial reporting uncertainties to arise during audits, the MCA introduced Notification G.S.R. 169(E) to establish clear guidelines for treating and disclosing Pillar Two taxes. This step reinforces India's commitment to maintaining alignment with global tax governance and transparent financial reporting.

Core Technical Modifications in Revised AS-22: Deferred Tax Exceptions and Disclosure Frameworks

The 2026 amendment to AS-22 introduces two critical statutory pillars: a mandatory temporary exception for deferred tax accounting and an extensive, multi-tiered disclosure regime.

1. The Mandatory Deferred Tax Exception (Paragraph 2A)

The most significant operational relief provided by the MCA is the mandatory exception from recognizing deferred tax assets (DTAs) and deferred tax liabilities (DTLs) connected to OECD Pillar Two top-up taxes. Calculating timing differences for Pillar Two taxes would require entities to forecast complex inter-jurisdictional top-up allocations, GloBE (Global Anti-Base Erosion) tax adjustments, and shifting local QDMTT rules. Performing these calculations for deferred tax purposes would introduce volatility into balance sheets without delivering meaningful information to stakeholders. Thus, Paragraph 2A mandates that entities neither recognize nor disclose details about deferred tax items linked to Pillar Two taxes.

2. Mandatory Disclosure Architecture (Paragraphs 32A–32D)

To balance the deferred tax exemption, the MCA introduced rigorous notes-to-accounts disclosure requirements:

• Explicit Exemption Statement (Paragraph 32A): Entities must formally disclose in their financial statements that they have applied the temporary deferred tax exception.
• Current Tax Disclosures (Paragraph 32B): Any current tax expense or credit resulting from Pillar Two top-up taxes (such as QDMTT paid in India or abroad) must be separately disclosed on the face of or in the notes to the income statement.
• Pre-Effective Exposure Reporting (Paragraph 32C): For periods where Pillar Two legislation is enacted or substantively enacted globally but not yet effective, entities must provide qualitative and quantitative disclosures detailing their potential exposure. This includes identified exposure jurisdictions, the proportion of group profits affected, and the estimated impact on the group's effective tax rate.
• Assessment Status Disclosure (Paragraph 32D): If quantitative information cannot be reasonably estimated, entities must explicitly state this fact and disclose the progress of their internal Pillar Two impact assessment.

Enterprise Scope & Applicability: Who Must Comply with Amended AS-22 under OECD Pillar Two Rules?

Determining the exact compliance scope under the amended Accounting Standard (AS) 22 requires evaluating an entity’s corporate structure against the OECD Global Anti-Base Erosion (GloBE) revenue thresholds. The Ministry of Corporate Affairs (MCA) has structured the applicability framework to target large cross-border enterprise groups while safeguarding domestic mid-market businesses and Small and Medium-sized Companies (SMCs) from unnecessary operational friction.

MNE revenue evaluation (Pillar Two applicability)

Question: Is Consolidated Global Turnover ≥ EUR 750M in at least 2 of the preceding 4 fiscal years?

If YES → In-scope entity

• Indian Parent (UPE) → Mandatory Para 32A–32D financial disclosures
• Indian Subsidiary → Standalone Indian GAAP financial statement disclosures

If NO → Out of scope

• Standard AS-22 compliance (No Pillar Two disclosures)

Comprehensive Impact Matrix & Statutory Obligations

Critical Practical Mandate for Indian Subsidiaries

A common governance error among finance teams is assuming that OECD Pillar Two compliance is solely the responsibility of the foreign Ultimate Parent Entity (UPE). Under the revised AS-22, Indian constituent entities must independently audit and report Pillar Two exposure in their standalone statutory financial statements in India.

Even if top-up tax payments are managed centrally at the group headquarters, local statutory auditors in India require verified notes detailing potential effective tax rate (ETR) discrepancies, current tax provisions, and explicit reference to applying the Paragraph 2A deferred tax exception.

Statutory Timelines, Implementation Roadmap, and Interim Financial Reporting Directives

Execution timelines under Notification No. G.S.R. 169(E) require careful coordination between corporate accounting teams and external audit partners. The statutory implementation roadmap is structured into three primary compliance phases:

AS-22 statutory timeline

• March 10, 2026 — Notification G.S.R. 169(E) published → Deferred tax exception (Para 2A) active
• March 31, 2026 — Interim financial reporting relief ends → Final day for interim disclosure exemption
• April 01, 2025 onward — Annual audit disclosure mandate → Full Notes to Accounts (Para 32A–32D) active

March 10, 2026 (Immediate & Retrospective Effect): The amendment came into force immediately upon publication in the Official Gazette. The exception from recognizing deferred tax assets and liabilities applies immediately and retrospectively for open financial periods. Tax provisions must reflect this treatment to avoid improper deferred tax asset/liability classification on balance sheets.

Financial Years Beginning On or After April 1, 2025: Full compliance with the mandatory disclosure framework under Paragraphs 32A, 32B, 32C, and 32D is enforced for annual financial statements covering FY 2025–26 and subsequent years.

Interim Reporting Window (Until March 31, 2026): To prevent disruption, the MCA granted interim reporting relief. Companies are not required to provide detailed Pillar Two exposure disclosures in quarterly or half-yearly interim reports published prior to March 31, 2026.

Technical Comparison: Legacy AS-22 vs. 2026 Pillar Two Amendment Framework

To navigate the regulatory changes, financial controllers must understand the statutory differences between traditional AS-22 tax accounting and the updated framework:

Understanding AS-22 — core concepts refresher for businesses

For those who want a quick grounding before diving into the implications, here is what AS-22 fundamentally does. It governs how companies account for income taxes in their financial statements specifically, it tries to make sure that what you report as your tax expense is consistent with what you actually owe under the law, even when the two do not always match up perfectly.

Key definitions under AS-22

• Accounting income (PBT): This is your profit before tax as it appears in the books calculated using accounting rules.
• Taxable income: This is what the Income Tax Act says you earned  often a different number from accounting income, because the two frameworks do not always treat the same items the same way.
• Current tax: The straightforward one the actual tax you owe for the current financial year.
• Deferred tax: This is where it gets interesting. When accounting and tax treatments diverge on the timing of recognising income or expenses, a deferred tax arises it is essentially the future tax impact of today's difference.

Timing differences vs. permanent differences

Timing differences happen when income or expenses land in different periods for accounting versus tax purposes but they eventually even out. The most common example is depreciation: a company might use straight-line depreciation in its accounts but written-down value method for tax, creating a gap that narrows over the asset's life.

Permanent differences, on the other hand, never reverse. If a particular expense is permanently disallowed under income tax law — say, certain penalties or fines there is no future period where that difference will come back. It just stays.

Under the amended AS-22, the total tax expense still equals current tax plus deferred tax — the Pillar Two deferred tax exception is carved out as a specific, limited relief, not a change to the fundamental structure of the standard.

Operationalizing Compliance: Enterprise ERP Updates, GloBE Data Tagging, and Governance Action Plan

Transitioning to the amended AS-22 framework requires immediate operational enhancements across ERP platforms, financial consolidation software, and internal control frameworks.

5-step operational roadmap

1. ERP & ledger reconfiguration → Isolate QDMTT and Top-Up tax accounts in General Ledger
2. GloBE Effective Tax Rate (ETR) mapping → Compute jurisdictional ETRs against 15% threshold
3. Notes-to-accounts disclosure preparation → Draft Paragraph 32A-32D disclosures for audit review
4. SMC exemption verification → Confirm SMC status under Accounting Standards Rules 2021
5. Independent audit & governance review → Perform pre-audit checks on Pillar Two tax positions

ERP Ledger Restructuring: Reconfigure Enterprise Resource Planning systems (e.g., SAP S/4HANA, Oracle Fusion) to create distinct General Ledger (GL) accounts for Pillar Two income taxes, separating QDMTT liabilities from local corporate tax obligations.

Automated ETR Calculation Engines: Deploy automated data extraction tools to calculate jurisdictional ETRs across all operational entities. The GloBE ETR formula requires precise adjustments to accounting income and covered taxes:

GloBE Effective Tax Rate (ETR) formula

GloBE ETR = (Adjusted Covered Taxes / GloBE Income) × 100

Financial Statement Note Preparation: Draft standard note templates incorporating the mandatory disclosures mandated by Paragraphs 32A–32D. Ensure that audit committees review pre-effective exposure estimates prior to final board approval.

Frequently Asked Questions: AS-22 Amendment & OECD Pillar Two Rules

Q1: What is the primary objective of the MCA AS-22 amendment in 2026?

A: The amendment aligns Indian Accounting Standard 22 with the OECD Pillar Two Model Rules, introducing a mandatory exception for deferred tax accounting and establishing explicit financial statement disclosure rules for global minimum top-up taxes.

Q2: Does the AS-22 amendment allow companies to book deferred tax assets for Pillar Two taxes?

A: No. Under Paragraph 2A of the revised standard, entities are explicitly prohibited from recognizing or disclosing deferred tax assets or liabilities arising from Pillar Two income taxes.

Q3: Which official MCA notification introduced this accounting standard update?

A: The update was introduced via MCA Notification No. G.S.R. 169(E), titled the Companies (Accounting Standards) Amendment Rules, 2026, dated March 10, 2026.

Q4: What global revenue threshold triggers applicability under OECD Pillar Two?

A: The rules apply to Multinational Enterprises (MNEs) with consolidated group annual revenues reaching or exceeding EUR 750 million in at least two of the four preceding fiscal years.

Q5: Are Small and Medium-Sized Companies (SMCs) exempt from these requirements?

A: Yes, SMCs are exempt from providing qualitative and quantitative exposure disclosures under Paragraphs 32C and 32D, reducing their reporting burden.

Q6: What are the effective dates for the new financial disclosures?

A: The deferred tax exception applies immediately upon notification. The new disclosure requirements (Paragraphs 32A–32D) apply for annual reporting periods beginning on or after April 1, 2025.

Q7: How must current Pillar Two taxes be reported on the income statement?

A: Under Paragraph 32B, current tax expense or income related to Pillar Two taxes must be separately disclosed in the financial statements rather than merged with local corporate taxes.

Q8: What information must be disclosed if quantitative estimates cannot be determined?

A: Under Paragraph 32D, entities must state that quantitative estimates cannot be provided and disclose details regarding the progress of their internal impact assessment.

Q9: Does this amendment apply to companies reporting under Ind AS?

A: Companies reporting under Ind AS are governed by parallel amendments to Ind AS 12 (Income Taxes). The AS-22 amendment directly governs entities reporting under Indian GAAP (Companies Accounting Standards Rules).

Q10: What is QDMTT, and how does it affect Indian constituent entities?

A: QDMTT stands for Qualified Domestic Minimum Top-Up Tax. It allows local tax authorities to collect top-up tax on under-taxed local profits before foreign jurisdictions impose top-up taxes under global GloBE rules.

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PP Singh

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PP Singh is the Digital Marketing Head at LegalDev, creating informative content on CA and CS services, taxation, business compliance, and corporate requirements.

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