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

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.

Greece Small Flag Greece

Yes.

Turkey Small Flag Turkey

Broadly, corporate tax is calculated over sum of net income and non-deductible expenses.

United Kingdom Small Flag United Kingdom

Yes. Corporation tax in the UK is a tax on profits. 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’).

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 perceive income whose source of wealth is located therein.

Unless otherwise provided by the applicable law, and depending on the activity that triggers income tax, income could be considered to have been perceived 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 base 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.

Gibraltar Small Flag Gibraltar

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

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.

Hong Kong Small Flag Hong Kong

Generally yes. The starting point for Profits Tax purposes is the profits as per the (audited) financial statements of the taxpayer prepared in accordance with generally accepted accounting principles. Profits as per financial statements are then adjusted to calculate assessable profits with the main adjustments being: (i) differences between depreciation for accounting purposes and statutory rates of depreciation allowances for taxation purposes; (ii) exclusion of dividends, most interest-like payments, certain non-Hong Kong source profits and capital profits; (iii) adjustments where accounting and taxation principles conflict in relation to capital and revenue expenditures; and (iv) specific exemptions and deductions under the tax legislation.

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.

Spain Small Flag Spain

Yes, Corporate Income Tax is applied on the income recorded in a company's books, which is calculated by applying the accounting standards. The Corporate Income Tax Act provides for certain adjustments to be made to such profit for the purposes of assessing the tax base.

Austria Small Flag Austria

Yes, the commercial accounts are the basis for the calculation of the taxable income of a business.

There is a large number of deviations though. Examples are:

  • Restrictions on the deductibility of expenses, such as interest or royalties, if paid to low tax jurisdictions or if not at arms' length;
  • tax exemptions for dividend income from domestic and non domestic subsidiaries;
  • exemption from capital gain income derived from non Austrian participations.

Losses may be carried forward indefinitely, but generally may be offset against only 75% of the profits of a year. The carryback of losses is not permitted.

Germany Small Flag Germany

Yes, the taxable income and, thus, the income tax liability of a business operation in Germany – whether corporate, partnership, single entrepreneur – is derived from its financial accounts established under German generally accepted accounting principles. The annual result according to commercial accounting is the starting point for determining the taxable income. Certain adjustments are however, made to arrive at the profit or loss for tax purposes and finally at the taxable income.

Belgium Small Flag Belgium

Taxable income is all worldwide income, less allowable deductions. It is, in the first instance, determined on the basis of the profit shown in the company’s financial statements drafted by its Board and approved by its shareholders’ general meeting. The accounting profit is adjusted to comply with specific tax rules deviating from the accounting standards.

Technically, the taxable basis of a corporation is defined as the sum of the net increase in the company’s taxable reserves, the distributed profits and the disallowed expenses. This taxable basis is then adjusted to take specific tax exemptions and allowances to determine the final taxable profits.

Practically-speaking, there are no distinct financial statements for accounting/commercial purposes and for tax purposes but only one financial statement established according to the Belgian GAAP or, when consolidating, according to the IAS/IFRS.

Italy Small Flag Italy

Yes, business income both for IRES purposes and individual income tax purposes are in principle computed on the basis of the profits and loss account outcome, determined in accordance with Italian accounting principles.

However, the determination of the final taxable basis is carried out by applying certain adjustments provided for by Italian income tax law.

Malaysia Small Flag Malaysia

Broadly yes though in some certain specific circumstances, the domestic tax law departs from the principles of commercial accountancy.

Ireland Small Flag Ireland

For trading (active) income the profits are broadly computed in accordance with the principal of commercial accountancy. Passive income is usually taxed on a receipts or arising basis. Capital gains are charged on a disposal of capital assets. VAT is charged on the supply of goods or services.

France Small Flag France

The taxable base is first determined according to the accounting principles provided for in the General Accounting Standards (“Plan Comptable Général”). 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).

Australia Small Flag Australia

Business taxation is predicated, fundamentally, on the accounting profits (and losses) of the enterprise. However, the ultimate computation of the business tax liability will be subject to various adjustments that accommodate the timing and characterisation differences between the tax and accounting systems.

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

For this reason, Swiss federal/cantonal tax codes provide for the possibility to include "unjustified commercial expenses" to the taxable profit (cf. also question 19, below).

Updated: March 10, 2017