Eva Eberhartinger

What if IFRS were a Tax Base? New Empirical Evidence from an Austrian Perspective

Abstract In particular in Germany and Austria, but also in other countries, extensive theoretical and analytical research has been published on the potential tax effects should International Financial Reporting Standards (IFRS) be used as the basis for corporate taxation. Very few quantitative papers exist. This motivated us to conduct a study that quantifies the actual effects of a potential decisiveness of IFRS for the national tax base – without further questioning the usefulness of an IFRS relevance. Our paper extends existing research substantially. The research question of our paper deals with the measurement through simulation of differences in the discounted tax burden in various scenarios. Our sample comprises original data from 61 Austrian companies. The median of the difference between book values of IFRS single accounts and tax accounts for specific balance sheet items is determined. We then apply the result to the items of a typical corporate account derived from an Austrian database. As a result, depending on the term of items, we can calculate the discounted tax effects for different scenarios. It must be underlined that such highly confidential and detailed tax data is usually not available to researchers. The main preliminary finding of our empirical survey is that only in a few cases we find essential differences between IFRS and tax accounts. Our evidence suggests that no dramatic change in the tax base is to be expected. Our study provides not only new empirical evidence but also a basis for further research on a possible common consolidated corporate tax base from an academic perspective.

The Impact of Tax Rules on Financial Reporting in Germany, France, and the UK

Abstract The paper examines the influence of tax rules on the financial statements of a company. An analysis of differences between tax reporting and commercial reporting in Germany, France and the UK shows that these differences lead to distorting effects with respect to the comparability of statements of companies from different countries, and with respect to non-compliance with the true and fair view requirement in cases where such influence of tax rules on the financial statements actually occurs. The comparison is conveyed with a view to the fourth EC company law directive, which itself does not take a position for or against the influence of tax rules. The strong influence of tax rules on the commercial accounts in Germany, in contrast to the UK, where such influence is minimal, and the moderate approach of France, which stands in between the two other countries, is discussed. The different approaches of the three countries can be considered an obstacle to comparability. In the opinion of the author, the required information in the notes on the influence of tax provisions does not compensate for the shortcomings of the influence of tax rules on the annual accounts of companies.

The True and Fair View in the European Union

This paper explores the issue of the true and fair view (TFV) and the overriding principle within the European Union (EU), via a legally based analysis of the relationship between EU and national laws. We apply the supremacy of European law to methods of incorporating the TFV into national legislation, using Austria as a detailed case study, showing that all countries – maybe against their original intention – either have an override (as does Austria, contrary to the prevailing local opinion) or have failed to honour their EU commitments. As part of our argument, we explain the importance of the Roman law teleological principle in legal application and interpretation, as is well known in Continental countries. We show that the effect of the UK TFV override is in principle exactly analogous, only arguably even more powerful, which is not at all well known in Anglo-Saxon countries. We suggest reasons why the status quo ante in particular countries may be adhered to, and generalise the implications of our arguments.

The European Union Endorsement Process for International Financial Reporting Standards: A Telos-Based Analysis

The paper discusses the process for the endorsement of an IFRS in the European Union with regard to its compliance with teleological principles and with regard to the true and fair view. It begins with an exposition of the teleological principle under Roman law and its relationship to the true and fair view override, as known in the UK and in the EU. We then discuss firstly the telos-based criteria against which a new Standard is appraised during the endorsement process, and secondly the application of the true and fair view principle to the issue of which criteria an EU-endorsed IFRS should be appraised against as regards its application, using IFRS 3 as a specific illustration. The teleological principle is a crucial element in our conclusions. We show that this principle can be used, and in the EU is being used, to bypass democratic processes. The issues raised by this paper concern the operation of regulations designed to be, at least theoretically, context-neutral, within a specific legal and operational framework, that is, the European Union. But similar issues are likely to require consideration in other geographical areas, outside the European context.

CCCTB – The Employment Factor Game

The draft for a CCCTB Directive in the EU includes the suggestion for an apportionment formula which allocates taxable profits to group member corporations and to the respective Member States. The draft directive delegates the right to define one apportionment factor, the term ‘Employee’ to the Member States, which can choose a narrow or a broad definition, the latter including also atypical employment schemes. Using a game-theoretic approach we show that defining ‘Employee’ broadly so as to maximize the Member State’s share in the apportionment factor is only optimal when tax rate differences and different sizes of atypical employment schemes are disregarded. If such differentials and the multinational corporation’s reactions to different domestic definitions are included a narrow definition of ‘Employee’ yields the highest individual pay-offs to the countries involved. Our paper differs from previous research on the economic effects of the CCCTB apportionment formula as it is the first analysing the employment factor and its distortive effects. We discuss possible tax minimizing strategies for multinationals by shifting employment and develop a model to quantify these potential relocations. The results of our paper may be relevant for the European Commission and the Council, when debating the details of formula apportionment. Furthermore we show how Member States could use the ‘Employee’ definition to both minimize factor emigration and maximize factor immigration, if the factor definitions remain unchanged.

Why Don't they Minimize their Tax? An Experimental Approach to Cross Border Hybrid Finance

International tax law allows, under certain circumstances, to considerably reduce the group average tax rate. In some cases, even the tax-free repatriation of yields on intragroup finance is possible, in particular when using hybrid finance. These cases are normally connected to complex questions of foreign, domestic, and bilateral tax law as well as to uncertainty on whether the intended tax consequences will be upheld by the fiscs in future years. We experimentally investigate the two key variables, legal uncertainty and tax complexity while controlling for decision makers’ risk attitude. Results show that overall tax complexity has a negative effect on the probability to choose a hybrid finance instrument, while legal uncertainty has not. The impact of the two factors is moderated by decision makers’ risk attitudes.

Cross-Border Intra-Group Hybrid Finance and International Taxation

In intra‐group finance hybrid instruments allow for tailor‐made form of finance. Hence hybrid finance is often used for international tax planning in multinational groups.Due to a lack of international tax harmonization or tax coordination qualification conflict can arise. A specific hybrid instrument is classified as debt in one country, and as equity in the other country. This may lead to double taxation. In the reverse case, double non‐taxation can arise. Against this legal background one might expect that cross‐border hybrid intra‐group finance is advantageous in comparison to classical debt finance in case of double‐non‐taxation while it can be expected to be disadvantageous in the case of double taxation of the yield. Previous studies do not include qualification conflicts. Thus the question arises how qualification conflicts are affecting an intra‐group finance decision.We examine effects of such qualification conflicts, resulting from the use of cross‐border, intra‐group hybrid finance, on the tax‐advantageousness as compared to classical debt finance. The analysis is based on a binomial simulation model including economic and legal uncertainty. We show that the results of our analysis under uncertainty vary significantly when compared to the more obvious results under economic and legal certainty.

Tax-Rate Biases in Tax-Planning Decisions: Experimental Evidence

This paper investigates how decision biases affect individuals’ tax decisions. We conduct four laboratory experiments with 303 students and 62 experienced tax professionals and find a systematic tax-rate bias in decisions under time constraints. More specifically, decision makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information, leading to suboptimal decision-making. We also find support for the theory of rational inattention as increasing the size of the tax-base effect mitigates the decision bias. However, we find that tax decisions are unaffected by participants’ professional experience: Students and highly experienced tax professionals are similarly prone to biased decision-making. Overall, our findings suggest that time constraints impede the use of complex information which can result in suboptimal tax planning.

Maßgeblichkeit in Deutschland und Österreich: Historische Entwicklung — Aktuelle Entwicklung — Zukünftige Entwicklung

Die Frage des Zusammenhangs zwischen steuerlicher Gewinnermittlung und den Grundsatzen der Rechnungslegung ist in Deutschland mehr als 100 Jahre alt. Die steuerrechtliche Gewinnermittlung unter Zugrundelegung der kaufmannischen (doppelten) Buchfuhrung wurde erstmals im Bremer Einkommensteuergesetz vom 17. Dezember 1874 und im Sachsischen Einkommensteuergesetz vom 22. Dezember 1874 festgeschrieben. Es folgten ua. Hamburg (1881), Sachsen-Meiningen (1890), Schwarzburg-Rudolstadt (1893), Schwarzburg-Sondershausen (1894) und Lippe-Detmold (1894). § 5 des deutschen EStG 1938 wurde durch das Rechtsuberleitungsgesetz und das Abgabenrechtliche Weitergeltungsgesetz in das osterreichische Recht ubernommen und im Rahmen des oEStG 1953 austrifiziert. Damit ist die die rechtliche Basis fur die weitere Entwicklung des EStG im Allgemeinen wie des Masgeblichkeitsgrundsatzes im Besonderen in beiden Staaten gleich und unterscheidet sich deutlich vom losen Zusammenhang in z.B. USA, Kanada oder Niederlande.