Frédéric GielenLead Financial Management

SpecialistEurope and Central Asia Region

THE WORLD BANK

The Relationship between Corporate Income Tax Reporting and Financial

Reporting: A Pan-European Perspective in the Context of Adoption of IFRS

 

The objectives of our research

Investigate the relationship between Financial and Tax Reporting

Investigate the possible Effects of the Utilization of IFRS on that relationship

The objective of our research

The scope of our research

 Belgium; Denmark; Estonia; France; Germany;

Luxembourg; Poland; The Netherlands; The UK

The scope of our research

Our initial findings……

The scope of our research

Preliminary Situation Analysis - Belgium

Belgium

Currently Belgian accounting

standards are not harmonized

with IFRS IFRS forum

established to work on framework

to enable BelgianGAAP to converge

with IFRS

Permit annual accounts under Reg. 1606

• None

• Annual accounts prepared in compliance with Belgian accounting

standards

Consequences of IFRS on tax

Allowing for certain adjustments between the

“financial” and “taxable” profit

Tax rules follow accounting principles in Belgium

Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited by not currently permitting the presentation

of annual accounts in compliance with IFRS

Permit annual accounts under Reg. 1606

• All

Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited as tax reporting is independent from financial

reporting

Denmark

• Tax books prepared according

to Danish tax rules

Annual accounts are independent of tax rules in Denmark

Preliminary Situation Analysis - Denmark

Permit annual accounts under Reg. 1606

• All

Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited as tax computation is assessed based on the

distributions to shareholders

• Distributions to shareholders

Unique framework as tax base is from distributions

not profits

Estonia

Preliminary Situation Analysis - Estonia

Preliminary Situation Analysis – France

France

Permit annual accounts under Reg. 1606

• None

•

Consequences of IFRS on TAXAlignment/Dependency of tax and annual accounts

Basis of Assessment

French Accounting Board to modernize French

GAAP by implementing some IAS/IFRS standards

over a time period

• Annual accounts prepared in compliance with French accounting

standards

Tax rules follow accounting principles in France

Reg. 1606 has no direct impact as not allowable for tax reporting but as French

GAAP is converging with IFRS there is an impact but it is measured and controllable

French accounting rules are converging with

IFRS, thus impacting tax bills

Permit annual accounts under Reg. 1606

• All

• Annual accounts prepared in compliance

with German accounting standards

Consequences of IFRS on TAX

Accounting principles follow tax rules in Germany

Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited by allowing IFRS for informational purposes only

Currently German accounting

standards are not harmonized

with IFRS

Germany

Expert group discussing moving away from the dependency on annual

accounts for tax reporting

Preliminary Situation Analysis - Germany

Permit annual accounts under Reg. 1606

• Annual prepared in compliance

with Luxembourg accounting standards

Consequences of IFRS on TAX

Tax profit is similar to accounting profit allowing for certain

adjustments between the

“financial” and “taxable” profit

Basis of Assessment

Limited by requiring a reconciliation back to tax reporting requirements

Luxembourg

• Listed companies

• Unlisted banks

If option is used required to

reconcile to local tax GAAP if using IFRS for Individual

entity accounts

Accounting principles follow tax rules in Luxembourg

Alignment/Dependency of tax and annual accounts

Preliminary Situation Analysis - Luxembourg

Expert group discussing the possibilities of

IFRS statements for tax purposes without a

reconciliation

Preliminary Situation Analysis - Poland

Permit annual accounts under Reg. 1606

Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited as tax reporting is independent from financial

reporting

• Tax books prepared according

to Polish tax rules

Annual accounts are independent of tax rules in Poland

Poland

• Listed companies

A reconciliation between taxable

profit and financial profit is a

mandatory note to the annual accounts

Currently Polish accounting

standards are not harmonized

with IFRS

Permit annual accounts under Reg. 1606

• All

Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts

Basis of Assessment

Limited as tax reporting is independent from financial

reporting

• Tax books prepared according

to Dutch tax rules

Annual accounts are independent of

tax rules in the Netherlands

Netherlands

Preliminary Situation Analysis - Netherlands

Preliminary Situation Analysis – United Kingdom

United Kingdom

Mr. Wayne Weaver, Tax PartnerBanking & Capital Markets

Deloitte & Touche LLP

Preliminary Analysis – Important Considerations

Compatibility of IFRS

with corporate tax reporting requirements

Consolidated tax base in the

European Union

Convergence of taxation

policies/models in the EU

Maintaining dependencies between tax and financial

reporting

Emerging High Level Policy Considerations

“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing”

Jean-Baptiste Cobert, Minister of Finance under Louis XIV

Research Paper will be available for review in May/June 2006

We look forward to presenting our final findings at that time

Thank you

Final Paper