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 (4th edition)

Angola Small Flag Angola

Yes, Industrial Tax is a general tax over profits obtained by resident entities in Angola or with a Permanent Establishment therein, based on the annual profits as computed for accounting purposes with specific tax adjustments.

Brazil Small Flag Brazil

In 2010, Brazil adopted the IFRS accounting model. However, from a tax perspective there are several adjustments to be considered by the companies. Thus, some account records should be disregarded or at least be treated differently for tax purposes.

Canada Small Flag Canada

Accounting principles are, of course, very helpful tools, but they are not binding in Canada.

The starting point is that taxpayers are entitled to arrange their affairs to minimise the amount of tax otherwise payable. Simply put, there is no substance over form doctrine pursuant to which a series of transactions could be revisited by the Canada Revenue Agency. The economic realities of a situation cannot be used to recharacterize a taxpayer’s bona fide legal relationships, absent a specific provision of the Income Tax Act to the contrary or a finding that they are a sham.

Colombia Small Flag Colombia

The Colombian Tax Code provides that Income Tax shall be determined on the basis of International Financial Reporting Standards (IFRS), unless specific tax rules provide otherwise. In practice, Colombia has adopted since 2017 a partial tax convergence to IFRS, and thus Income Tax in determined on the basis of a combination of local tax rules and IFRS.

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.

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.

Gibraltar Small Flag Gibraltar

Yes, the standards applied are normally the accounting principles of the UK or those of the European Union depending on the nature of the transaction.

Greece Small Flag Greece

Business profits are initially determined on the basis of the profit and loss statement prepared in accordance with the accounting principles prescribed under Greek law. However, the taxable base is finally determined on the basis of the provisions of the ITC, which apply to increase or reduce the income that is subject to taxation including on the basis of specified depreciation rates and rules on the deductibility of bad debt provisions applicable for income tax purposes.

India Small Flag India

For the computation of business income, the starting point is the accounting profits computed according to principles of accounting standards, to which various adjustments as stipulated under IT Act are to be made.

Ireland Small Flag Ireland

Yes. Corporation tax in Ireland is a tax on profits and the starting point are the profits calculated in accordance with accounting principles. Certain adjustment to accounting profits may be required under law and may be permanent (e.g. entertainment expenses) or temporary (e.g. capital depreciation).

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.

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 to 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.

Austria Small Flag Austria

In general, the determination of the taxable income is based on the Austrian GAAP account, however, adjustments are necessary to comply with specific fiscal tax provisions (e.g. different depreciation periods, tax reliefs etc.). In the new government program it is intended to consolidate the tax balance with the commercial balance.

Japan Small Flag Japan

Yes, the corporate tax is levied on, broadly, the revenue profits of a business, as calculated according to the Generally Accepted Accounting Principles, although substantial adjustments will be made to such profits in order to calculate the income for the purposes of the tax law.

Under the Corporation Tax Act, the income of a corporation shall be calculated in accordance with GAAP, unless otherwise defined under the law. The tax law has many provisions to adjust the profits of a business in accordance with GAAP for the purposes of tax law (e.g. exclusion of certain dividends from income, limitation on the deduction of certain remuneration to directors, etc.).

Luxembourg Small Flag Luxembourg

Luxembourg companies are taxed on their annual net profits as determined under Luxembourg general accounting principles (“Lux GAAP”) under which both upward and downward adjustments are allowed. As a general rule, the commercial accounts are used as a basis for the computation of the Luxembourg tax, unless a specific tax rule specifies otherwise (principe de l’accrochement fiscal au bilan commercial).

The main tax adjustments to the commercial balance sheet are as follows:

  • tax-exempt profits (e.g. as per the participation exemption regime applicable for dividends and capital gains);
  • add-back expenses (e.g. interest expenses on assets generating tax-exempt income);
  • adjustment to the tax results from the transactions that were not at arm’s length (e.g. the interest rate set was not at market conditions, or interest payments were reclassified as hidden dividend distribution and hence not tax deductible anymore); and
  • discrepancies between the application of different valuation rules in accounting and in tax (e.g. amortisation, rollover relief).

Luxembourg taxes retain and distribute profits in the same manner.

Malaysia Small Flag Malaysia

Yes. Taxable corporate income in Malaysia comprises income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia and includes, on top of gains or profits from a business, dividends, interest, discounts, rents, royalties, premium and other current earnings.

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 whose income 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 service 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 corresponding fiscal year’s authorised deductions and the workers’ participation in the entity’s profits. Additionally, net operation 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 provisional tax 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.

The Netherlands Small Flag The Netherlands

The commercial accounts of a company are the starting point of the tax accounts. Certain differences in the depreciation of assets, deductibility of expenses and other items need to be taken into account for tax purposes.

Peru Small Flag Peru

Broadly, this charge is levied on business profits computed in accordance with the International Financial Reporting Standards, but they need be adjusted to suit the new rules on “accrual” that, effective from January 2019, have been incorporated in our tax law. These rules disregard the probability that the company receives the flows related to the transaction under analysis.

Philippines Small Flag Philippines

Yes, business taxes are levied on revenue profits computed based on Philippine Accounting Standards (PAS) and International Accounting Standards (IAS). However, there are certain ceilings imposed by the tax authority on some items of deductions for purposes of computing the taxable income.

Poland Small Flag Poland

The business profits calculated on the basis of the Polish Accounting Act are the basis for the calculation of the taxable income for corporate, partnership or individual entrepreneurs.

This means that activities (including business transactions) must be entered into the accounting ledgers and disclosed in the financial statements.

Any adjustments should comply with specific fiscal tax provisions (e.g. different depreciation periods, tax reliefs etc.).

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.

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

South Africa Small Flag South Africa

The revenue profits of a company are used as a starting point to determine the relevant business tax in a particular year of assessment. The revenue profits from an accountancy perspective are then adjusted subject to various inclusions, exemptions and deductions as contemplated in the Income Tax Act, 1962.

Spain Small Flag Spain

The taxable profit is the company’s gross income for the tax period, less certain deductions. Its determination comes up from the annual financial statements prepared under Spanish Generally Accepted Accounting Principles (SGAAP), as adjusted under certain statutory tax provisions.

It must be taken into account that Tax Authorities are legally authorized to modify accounting results in order to determinate tax results if they consider that accounting results have not been calculated as defined in the SGAAP.

All necessary expenses and costs connected to producing income may be deducted from gross income to arrive to taxable income determination. Additionally, Spanish CIT Law provides for certain items that are never deductible (permanent differences) or are deductible in a different year (timing differences).

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 recognised 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, the 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 can reclassify ‘commercially unjustified expenses’ as taxable profit.

United States Small Flag United States

US tax law generally allows a taxpayer to select the method of accounting to be used to compute taxable income, provided that such method clearly reflects the income of the taxpayer. Permissible methods of accounting include the cash receipts and disbursements method, an accrual method, or any other method permitted by the US Treasury Department or IRS.

Many businesses, including most corporations, use an accrual method of accounting for tax purposes. Under an accrual method of accounting, taxpayers generally accrue items of income when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy. However, as enacted in the TCJA, businesses that use an accrual method of accounting may not treat the “all events” test as having been met for any item of income any later than when that item is taken into account as revenue in an applicable financial statement.

Zambia Small Flag Zambia

Yes.

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’).

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.

Panama Small Flag Panama

Taxable income includes all income derived from business activities in Panama less expenses incurred wholly and exclusively in the production of assessable income or the conservation of its source.

Panama has incorporated as part of its internal regulations the application of the NIIF as accounting standards norms. For tax purposes is mandatory to apply the accrued system to the registration of income, cost and expenses.

Updated: October 9, 2019