Taxing Corporations on Financial Statement Earnings: Current Proposals, Long-Standing Concerns

32 Pages Posted: 30 Jun 2020

See all articles by Mindy Herzfeld

Mindy Herzfeld

University of Florida Levin College of Law

Multiple version iconThere are 2 versions of this paper

Date Written: June 22, 2020


Book-tax differences have existed for as long as the corporate income tax. And for almost as long, there have been regular efforts to introduce greater conformity between the two. Over the past four decades, proposals to substitute (in whole or in part) a tax base that relies on profit as reported in financial statements for the legislatively enacted corporate tax base have been regularly introduced. These proposals are generally based on the assumption that taxing book income provides a simpler, fairer and more efficient way to tax corporate income. The proposals also assume that taxing book income permits less opportunity for corporate tax avoidance.

Such efforts for parity between book and tax income – also referred to as book-tax conformity – have regularly failed to gain traction. Nonetheless, the idea is again rearing its head both in the international and domestic spheres. In the international arena, two proposals introduced by the OECD for taxing the digitalized economy relied to a greater or lesser extent on a tax base computed from multinationals’ consolidated financial accounts economy (OECD 2019a,b). Domestically, at least three leading Democratic presidential candidates for the 2020 election proposed a minimum tax on corporate profits as computed from financial statements, including former Vice President Joe Biden.

The resurgence of interest in the use of financial statement profits as an alternative tax base prompts a reexamination of the history of similar prior proposals, the critiques levied against them, and the reasons for their lack of success. Careful consideration of the problems highlighted by those who have earlier delved into the subject is due, in order to determine whether its possible to address concerns previously raised before moving forward with a plan to tax multinationals based on financial statement profits. Or reconsideration of these concerns may make clear that the detriments outweigh the perceived benefits of these proposals.

Part I of this paper outlines the history of prior proposals for book tax conformity. Part II reviews more recent proposals for taxing multinationals based on financial statement profits both domestically and internationally. Part III highlights concerns that have been raised, both about older and more recent proposals. Part IV concludes with a consideration of the extent to which concerns raised in other contexts remain valid for proposals made in 2019, and whether it may be possible to modify these proposals to adequately address the problems.

Suggested Citation

Herzfeld, Mindy, Taxing Corporations on Financial Statement Earnings: Current Proposals, Long-Standing Concerns (June 22, 2020). Available at SSRN: or

Mindy Herzfeld (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics