European Taxation, Vol. 44, No. 10, 2004, p. 426-440
15 Pages Posted: 17 May 2010
Date Written: October 1, 2004
When the European Commission released a Communication on company taxation in October 2001, it established nothing less than the far-reaching political aim of supplying companies and company groups engaged in cross-border commercial activities with a uniform tax base that would apply to all profits of the company or group within the jurisdiction of the European Union. However, as the tax base constitutes one of the fundamental elements of national sovereignty, such undertaking will understandably face considerable constraints by national legislators. In this light, the article argues that the IAS/IFRS, which have recently been adopted as the common accounting framework for European listed companies, are the politically and technically most suitable “starting point” for a common European tax base.
In order to demonstrate this, it evaluates the standards that will best serve the interests both of the tax administration as well as the business community. First of all, the article shows that the accrual concept laid down in the IAS Framework and most features of recognition, valuation and risk provision are in line with the goals of corporate and individual income taxation. Problems arise, however, when investment properties and financial instrument are measured according to the “fair value concept”, which seems too vague and volatile to grant the taxpayers and tax inspectors the required certainty and cannot be applied in the field of taxation. Therefore, IAS/IFRS can only serve as the starting point for a common consolidated tax base if the weight of fair value accounting for the valuation of assets and liabilities is reduced. Finally, the article addresses the key question of “timing”, i.e. the allocation of profits and losses to different fiscal years. In this regard, the article shows that both the Anglo-American “percentage of completion method” employed by IAS/IFRS as well as the German-Continental “completed contract method” or “realization principle” have pros and cons when applied for taxation purposes. In the end, the experience from the various Member States shows that there is no compelling argument for one or the other accounting method, which leads to the conclusion that a European tax accounting system could reasonably follow the IAS/IFRS-employed completion method in this respect. As a result, the article comes to the conclusion that the basic elements and functions of IAS/IFRS are largely coherent with the necessities of an enforceable tax code and therefore can serve the purposes of business taxation.
Keywords: European Tax Law, Accounting Standards, IAS, IFRS, International Tax Law, Business Taxation, Corporate Taxation, Company groups, common tax base
Suggested Citation: Suggested Citation
Schoen, Wolfgang, International Accounting Standards - A Starting Point for a Common European Tax Base? (October 1, 2004). European Taxation, Vol. 44, No. 10, 2004, p. 426-440. Available at SSRN: https://ssrn.com/abstract=1603758
By Paul Diaconu
By Paul Diaconu