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Abstract
The operational links between tax and financial reporting vary on a continuum from country to country and from period to period. We propose a model for how the links vary over time in developed Western countries. This takes account of competing purposes for accounting, and the mutual reactions of taxation and financial reporting authorities. We illustrate the model using the case of Norway over a 30-year period up to the adoption of IFRS. This has the incidental benefit of analysing the operational links for Norway, which has not been done systematically before, at three dates. We also put Norway into the context of four other countries by adopting and somewhat enhancing existing methodology. We show that Norway has moved from a ‘continental’ position to one that exceeds the disconnection of tax from financial reporting found in the USA or the UK. We raise several research questions related to the generalisability of our model.
Acknowledgements
The authors are grateful for comments on earlier drafts from Sally Aisbitt, Maria Gee, Ole Gjems-Onstad, Erlend Kvaal, John Christian Langli, Klaus Meyer and Alan Roberts and from two anonymous referees and the editor of this journal.
Notes
1. By ‘tax system’ is meant the rules and practice of the calculation of corporate taxable income at a particular time in a particular jurisdiction.
2. The IASB's Conceptual Framework, issued by the IASC in 1989 (para. 6).
3. That is, continuous revaluation to current market values, with the implied gains and losses taken immediately to the income statement.
4. Regulation 1606/2002.
5. The 1986 revision of the plan comptable général extended the plan to cover consolidated reporting in response to the EU Seventh Directive. For several accounting issues, particular optional valuation rules are allowed for consolidated statements only (Richard, Citation2001).
6. Until the 1991 law, consolidated statements were not generally required in Italy. However, from the 1970s, the stock market regulator (CONSOB) was in charge of a special regime (mainly for listed companies) that did require consolidation. Special rules, including accounting standards (principi contabili) applied (Zambon, Citation2001, pp. 536, 568).
7. For consolidated, but not unconsolidated, statements in Sweden, untaxed reserves must be removed (Heurlin and Peterssohn, Citation2001, p. 1221).
8. From 1981, a regime based on the reducing balance method was allowed.
9. Special depreciation is included under the heading ‘exceptionnel’ expense.
10. This did not specifically apply to inventory impairment, so practice was mixed.
11. It became ‘good accounting practice’ and was therefore seen as required by law.
12. These amounts are shown as ‘provisions réglementées’.
13. The credit can be shown as ‘Sonderposten mit Rücklageanteil’.
14. A deferred tax liability relating to an upward revaluation could have been accounted for but generally was not.
15. July, 17, 1998, no. 56.
16. March, 26, 1999, no. 14.
17. As noted earlier, the topic of impairment has also been split out from the topic of fixed asset measurement, with scores added for the other four countries. However, for each country, the scores are the same for the two topics.
18. See Appendix B.
19. www.oslobors.no
20. Innst. O. nr. 80 (1990–91), p. 123.
21. Ot. prp. nr. 35 (1990–91), p. 60.
22. That is, as suggested above, the Ministry of Finance, advised by the Oslo Stock Exchange, the NASB and the NSRF.
23. Innst. O. nr. 77 (1991–92), p. 8.
24. Ot. prp. nr. 42 (1997–98), p. 16.
25. For example, the use of fair values for investment properties and biological assets in IASs 40 and 41.
26. Ot. prp. nr. 89 (2003–2004), p. 26.
27. Innst. O. nr. 17 (2004–2005).
28. In respect of intangible assets, the Tax Law (§6–10) includes impairment rules similar to the Accounting Law (§5–3). This would be Identity: Case II, but we follow Lamb et al. in assessing only tangible assets and non-consolidation goodwill (see 12).
29. The earliest version was issued by the Norwegian Institute (DnR) in 1988 and could have been applied in that year. Otherwise, ‘good accounting practice’ up to that date would be to treat all leases as operating leases which coincided with the tax practice that ruled until the new accounting rules came into force.
30. This standard was issued in 1996 but was preceded by a similar recommendation issued in 1979.
31. As for IAS 20, the initial credit entry for the grant is either deferred income or a reduction in the cost of the asset.
32. ‘Extraordinary income and expenses, correction of errors and effects of change in principles and estimates’.
33. For example, subsidiaries must be held by 90% or more. For such ‘groups’, there is a mechanism for transferring taxable income from one company to another.
