Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?

Tax (2nd Edition)

Romania Small Flag Romania

The taxable profit which is the basis for the corporate income tax is calculated starting from the accounting profit which is adjusted with non-deductible expenses and non-taxable revenues. Among non-deductible expenses there are certain types of provisions, interest falling outside the thin capitalization rules limits, expenses with goods and services which cannot be proved as being acquired for the benefit of the business, depreciation of cars exceeding a certain threshold, etc. Non-taxable revenues consist in dividends received from subsidiaries (under certain conditions), recovery of non-deductible expenses, etc.

Broadly in case of Romanian taxpayers having the obligation of keeping the accounting as per the Romanian legislation, the Fiscal Code provides that the tax result is computed as the difference between the incomes and expenses recorded according to the applicable accounting regulations, minus non-taxable income and tax deductions, plus non-deductible expenses. In determining the tax result, other elements similar to incomes and expenses are also taken into consideration, according to the methodological norms, as well as the fiscal losses that are recovered of taxable profits earned over the next seven consecutive years. The positive tax result is named taxable profit, and the negative tax result is named tax loss.

Australia Small Flag Australia

Income tax is levied on an entity’s taxable income. An entity’s taxable income is, broadly, the entity’s assessable income, less any allowable deductions. The differences which exist between accepted commercial accounting principles and the income tax law means that a taxpayer’s taxable income may be materially different to its revenue profit for accounting purposes.

At a more practical level, broadly, a business’s income tax liability will be calculated by making adjustments to the revenue profit recorded in the business accounts to recognise the various differences which exist between the tax and accounting treatments of individual items of revenue and expense that contribute to the profit calculation.

France Small Flag France

The taxable base is first determined according to the accounting principles provided for in the 'Plan Comptable Général' (General Accounting Standards). Then, the FTC provides for specific provisions to the application of which results in the taxable income to be increased (e.g. limitation of deductible interests, transfer pricing, CFC and GAAR rules) and/or decreased (e.g. accelerated depreciation, loss carry-forward, participation-exemption regime).

Canada Small Flag Canada

Yes. Income tax is imposed based on the profits of the business for the fiscal period. However, there are provisions of the Income Tax Act which may require different treatment than commercial accounting principles, such as capital cost allowance rates for the depreciation of capital property.

Belgium Small Flag Belgium

The taxable income of a corporation encompasses its worldwide income, less allowable deductions. For Belgian corporate tax purposes, the taxable income is determined on the basis of the approved Belgian GAAP annual accounts. The accounting profit is adjusted insofar tax provisions provide for deviations from accounting law.

There is no separate tax balance sheet.

Bulgaria Small Flag Bulgaria

Yes. The tax base is the accounting profit pursuant to the commercial accounts and subject to adjustments. Tax adjustments include the following:

  • non-business related or not duly documented expenses;
  • hidden profit distribution expenses;
  • interest restricted under the thin capitalisation rules;
  • expenses for impairment of assets; and
  • dividends received from local or EU-based companies.

According to tax depreciation rules, maximum annual tax depreciation rates are between 4% and 50%, depending on the type of asset. In general, profits are taxed on an accrual basis.

United States Small Flag United States

Yes. Corporate tax is a tax on the profits of the corporation. However, certain provisions of the tax code, such as depreciation allowances, may differ from commercial accounting principles.

Ukraine Small Flag Ukraine

Yes, profit tax is charged to, broadly, the revenue profits of a business as computed according to the national accounting standards and international financial reporting standards. Therewith, the annual revenue from any activity determined in accordance with accounting rules includes income (revenue) from the sale of products (goods, works, services), other operating income, financial income, and other income.

Cyprus Small Flag Cyprus

The charge to tax is based on profits computed according to International Financial Reporting Standards, adjusted to reflect exempt income and disallowable expenditure according to the Income Tax Law.

Ecuador Small Flag Ecuador

Income tax is levied on taxable profits, as determined by its books of account kept according to IFRS (International Financial Reporting Standards). However, corporations and certain individuals are subject to an income tax advance determined in the income tax return of the previous year and payable during the current year. The income tax advance is a credit against the income tax liability calculated at the end of the year.

The income tax advance is calculated over the sum of: 0.4% of assets, 0.2% of equity, 0.4% of taxable income and 0.2% of deductible expenses.

If the income tax advance is higher than the income tax liability, the income tax advance becomes the income tax liability, exposing the taxpayer to excessive taxation.

United Kingdom Small Flag United Kingdom

Yes. Corporation tax in the UK is a tax on profits. The starting point in the computation of taxable profits is the figure provided by commercial accounting. This figure is then adjusted as required or authorised by law. Taxable profits include the money the company or association makes from doing business (‘trading profits’), investments and selling assets for more than they cost (‘chargeable gains’).

Gibraltar Small Flag Gibraltar

Gibraltar operates a territorial system of taxation, taxing profits that accrue in or derive from Gibraltar-based profit-making activities.

Israel Small Flag Israel

Yes. The tax base for the Israeli income tax is generally the taxpayer’s net income, as determined under Israeli accounting principles, and adjusted in accordance with the provisions of the tax law and applicable regulations. As a general rule, Israeli taxpayers must report their income for accounting and tax purposes according to the accrual method of accounting.

There are differences between the accounting rules and the tax rules, which are set out in the tax law and regulations. The principal differences relate to depreciation and amortisation; limitations on deductibility of certain expenses; and accounting income derived under the grouping rules generally inapplicable for tax purposes.

Switzerland Small Flag Switzerland

As a general rule, the taxable profit subject to Swiss corporate income tax is determined on the basis of the annual account statements prepared in accordance with the accounting rules set out in the Swiss Code of Obligations (‘CO’).

However, the accounting rules of the CO differ significantly from generally recognized international accounting standards (e.g. the IFRS or the US GAAP). In contrast with the prevailing true and fair view principle of international accounting standards, accounting rules of the CO are largely shaped by the principle of prudence (in particular, the formation of hidden reserves is allowed to a virtually unlimited extent).

For this reason, Swiss federal and cantonal tax law provides for the possibility to include ‘commercially unjustified expenses’ in the taxable profit.

Italy Small Flag Italy

Business tax is levied on a tax base rendered by the application of certain determined downward or upward adjustments to the revenue profits computed according for accounting purposes as reported in their financial statements. Different rules apply to companies that draft their financial statements according to Italian GAAP and to those that apply IFRS.

Portugal Small Flag Portugal

Portuguese resident companies and local permanent establishments of foreign entities are taxable on their taxable income, determined in accordance with accounting standards and subject to the Portuguese CIT Code provisions.

From 2010 onwards, the Portuguese accounting standards (Generally Accepted Accounting Principles – GAAP) follow closely the International Financial Reporting Standards (IFRS).

Kenya Small Flag Kenya

Taxable profits are based on adjusted accounting profits. Therefore, a company’s taxable profits comprise the excess of a company’s net accounting profit having added back non-deductible expenses and having deducted allowable expenses and capital allowances. Generally, expenses such as capital expenditure, restricted loan interest due to thin capitalisation, personal expenses, unrealized foreign exchange losses and depreciation would be disallowed for tax purposes. On the other hand, capital allowances ranging from 12.5% to 37.5% would be allowed against taxable income for equipment used in the production of income.

Poland Small Flag Poland

Taxpayers conducting business activity are obliged to maintain accounting records which allow for the determining of the income for taxation. The financial result shown in the accounting books is a starting point for determining the taxable basis; however, due to the differences between the accounting and tax treatment of certain operations, relevant adjustments are made for tax purposes.

Japan Small Flag Japan

Yes. Taxable income for corporate tax purposes will basically be calculated based upon the income for accounting purposes, in accordance with the generally accepted accounting principles of Japan. For this purpose, it is considered generally accepted accounting principles that income shall be taxed on an accrual basis rather than receipts basis.

Then, solely for tax purposes, substantial adjustments will be made. Major adjustments include: (i) exclusion from taxable income of all or part of dividend income received from Japanese corporations (an equivalent of dividend received deduction), (ii) exclusion from taxable income of dividend income received from foreign subsidiaries (a territorial approach to mitigate international double taxation as to income derived through foreign subsidiaries, in lieu of indirect foreign tax credit), (iii) limitation on deductibility of remunerations paid to directors and officers of the corporation, (iv) limitation on deductibility of donations or gifts made by the corporation as well as entertainment expenses, (v) denial of deductibility of allowances or reserves established internally by the corporation, (vi) denial of deductibility of criminal or administrative fines or damages due to will misconduct or gross negligence, (vii) deduction of net operating loss carryforwards from prior fiscal years, (viii) mark-to-market rules for trading securities and derivatives in respect of unrealized built-in gains and losses, (ix) Japanese consolidated tax regime (available for 100% owned corporate group consisting of Japanese corporations upon election), and (x) group-based taxation regime (special rules for transactions among 100% owned corporate group consisting of Japanese corporations). In addition, there are special rules for acquisitive and divisive reorganizations (e.g., merger, divestiture, etc.) like section 368(a)(1) et al of the U.S. Internal Revenue Code, e.g., deferral of recognition of gains and losses arising from reorganization transactions.

Each of these regimes has complicated and detailed rules consisting of general principles and various exceptions and further exceptions.

The Netherlands Small Flag The Netherlands

In principle yes. However, for the calculation of the taxable profits certain adjustments may or have to be made, for instance in valuations of assets and the timing of realization of profits.

Mexico Small Flag Mexico

Mexican resident legal entities are subject to income tax on a worldwide basis. Concerning foreign tax residents, they could be subject to taxation in cases where they have a permanent establishment within national territory or derive income whose source of wealth is located therein.

Unless otherwise provided by the applicable laws, and depending on the activity that triggers income tax, income could be considered to have been received by a taxpayer (and should therefore be accrued) when the corresponding invoice is issued, when the good or services is materially delivered or rendered, respectively, or when the consideration is paid or is entirely or partially due and payable. However, it should be noted that income tax is generally paid by means of an annual tax return.

In general terms, the taxable basis on which a Mexican resident legal entity is required to pay is determined as follows: the entity’s profits are reduced with the relevant fiscal year’s authorised deductions and the workers’ participation in the entity’s profits. Additionally, net operating losses from past fiscal years could be reduced.

Regardless of the fact that legal entities are usually required to pay income tax by means of an annual tax return, monthly estimated returns (whose amount is determined taking into account the past fiscal year’s results) ought to be filed.

Concerning foreign tax residents, taxes due on their operations within Mexican territory (or that are Mexican-sourced) are generally withheld by the entity that made the corresponding payment.

Norway Small Flag Norway

The determination of taxable income is as a starting point based on the results shown by the annual accounts. However, many of the regulations of the Accounting Act, for instance rules concerning valuation of assets and liabilities and depreciation, will differ from the rules in the Tax Act. Also, some revenues are not considered taxable income, and not all expenses are deductible. A company's accounting profit/loss is seldom identical to its tax profit/loss. The accounting profit/loss for the year is corrected in accordance with the applicable tax rules to arrive at the taxable profit/loss.

Germany Small Flag Germany

The business profits calculated on the basis of the German GAAP accounts are the basis for the calculation of the taxable income for corporate, partnership or individual entrepreneurs. Certain adjustments are made on the basis of the commercial balance sheet which lead to the so-called tax balance sheet. There are also off-balance sheet additions and deductions for tax purposes which finally lead to the taxable income.

Updated: October 18, 2017