Enterprises around the world should follow financial reporting and accounting & taxation rules aimed at delivering investors with a fair and true view of the financial situation of the business. These regulations increase international comparability and transparency of the results of a group enterprise, and are a strong initiative into the foreigner market. National Accounting Standards (NAS) and International Accounting Standards (IAS) are massively used by Multinational Enterprises (MNEs).
Financial reporting and accounting rules are rapidly shifting away from customary legal conceptions applied in commercial and fiscal laws. They are progressively based upon a fair approach of presentation. The results shown for financial reasons may fluctuate significantly from the profits exposed in the books of single enterprises or in the taxation returns. MNEs thus risk being confronted with unnecessary requests for taxation profits adjustments or with the condition that profits revealed for financial purposes in a specific region be taxable in that region.
The international and national business community is of the view that it is significant for tax authorities and policy makers to be aware of the causes why the results exposed in financial statements of a group or enterprise differs from the taxable results of such group or enterprise. A few regions around the world follow the notion of dependence in determining the taxable outcomes. This indicates that the profits resulting from the commercial financial statements are taken as the key basis for taxation assessment.
Subject to the pertinent taxation rules, certain fiscal adjustments have to be made with the aim of computing taxable profits. Both systems have shortcomings and advantages. With separate taxation guidelines, two sets of rules should be applied, which may enhance the compliance load for enterprises. It may also be easier to turn aside for taxation purposes from certain standards followed in commercial accounting. Though, even when taxation is based upon the commercial accounting, certain adjustments for taxation are unavoidable.