As at December 31, 2023, there were thirteen countries around the world whose economies were considered hyperinflationary. Entities whose functional currency is the currency of one of these countries and that have December 31, 2023 reporting requirements have to reflect the requirements of IAS 29 Financial Reporting in Hyperinflationary Economies in their IFRS financial statements.

IFRIC decisions relating to hyperinflation

The IFRS Interpretations Committee (IFRIC) have previously considered a number of accounting issues in relation with hyperinflation. These include the following items:

• Translating a hyperinflationary foreign operation and presenting exchange differences;
• Accounting for cumulative exchange differences before a foreign operation becomes hyperinflationary;
• Presenting comparative amounts when a foreign operation first becomes hyperinflationary;
• Consolidation of a non-hyperinflationary subsidiary by a hyperinflationary parent.

We encourage careful consideration of these issues when preparing IFRS financial statements and applying IAS 29.

The new publication Overview of IFRS S1 and IFRS S2 introduces both of the new sustainability Standards IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosure.

It explains the key things you need to know about them. It also provides a description of the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD).

The ISSB’s aim is to establish a global baseline of sustainability-related financial disclosures, which creates a common language for disclosing sustainability risks and opportunities in order to achieve global comparability. The Standards become effective for annual reporting periods beginning on or after January 1, 2024. Together, they mark the start of a new era of requiring reporting entities to make sustainability-related disclosures.

Latest international development

The IFRS Foundation has recently launched the IFRS Sustainability knowledge hub to support the use of the sustainability Standards. The hub has been designed to help companies preparing their sustainability disclosures, but it will also be useful repository for investors, regulators and other stakeholders. Resources on the hub currently include an introduction to the Standards, a guide for transitioning from a previous sustainability framework, such as the TCFD, to the Standards as well as a set of Frequently Asked Questions (FAQs).

The publication Overview of IFRS S1 and IFRS S2 in include in this Sustainability Adviser Alert.

Canada Proposes Global Minimum Tax Act: A Comprehensive Overview of the Draft Legislation and Potential Implications.

On August 4, 2023, the Canadian Department of Finance released draft legislation for the Global Minimum Tax Act (GMTA) which will introduce a global minimum tax (GMT) in Canada.

The GMTA includes two domestic fiscal measures of the OECD/G20 Inclusive Framework’s Pillar 2:

• a 15% domestic minimum top-up tax on the income of Canadian-located entities and permanent establishments of multinational enterprise (MNE) groups—which should be a qualified domestic minimum top-up tax (QDMTT); and
• a 15% top-up tax, under an income inclusion rule (IIR), on the income of foreign-located entities and permanent establishments of MNE groups with Canadian ultimate or intermediate parent entities—a tax that is intended to be a qualified IIR.

The GMTA intends to implement an undertaxed profits rule (UTPR), which is the third domestic fiscal measure of Pillar 2, in the future.

Consistent with the Pillar 2 framework, the proposed Canadian GMT will apply to members of MNE groups that have annual consolidated revenues of €750 million or more, with a business presence in Canada and at least one foreign jurisdiction. The tax is proposed to apply to fiscal years of MNE groups on or after December 31, 2023 (with the UTPR expected to become effective one year later).

At the time of writing, the Canadian GMT is not considered substantially enacted for accounting purposes.

The GMTA will be a stand-alone statute rather than as an additional “part” of the Canadian Income Tax Act. Subsection 3(1) of the GMTA prescribes that certain portions of the legislation (including the parts implementing the IIR and UTPR, but not the part implementing the QDMTT) are to be interpreted consistently with the OECD GloBE model rules, commentary, and administrative guidance (“GloBE sources”), as they may be amended from time to time, unless the context otherwise requires. A separate interpretive rule in paragraph 48(b), applicable to the QDMTT, refers only to the GloBE commentary. This is a novel approach (although it has been used in Canada’s Common Reporting Standard legislation – Part XIX as well as the recently proposed anti-hybrid proposals).

Canadian tax advisors have noted that there could be constitutional issues with this approach; most notably that it may conflict with the exclusive power of the Canadian Parliament to raise “money by any mode or system of taxation”. Additionally, the use of dynamic interpretation will mean that future changes to the GloBE will automatically apply.
The GMTA follows the GloBE sources but its drafting deviates from these sources. Rather than simply adopting the GloBE model rules into Canadian law by reference, the legislation redrafts the rules in a manner that is consistent with Canadian domestic drafting of tax legislation.

Canada and its provinces offer generous tax credits for certain activities notably for R&D and certain other related activities in the film, clean energy, and hi-tech sectors. Typically, these tax credits are not refundable. Hence, they are not qualified credits. We understand that the federal and provincial taxation authorities are considering whether the credits should become refundable.