The Relationship between Corporate Income Tax Reporting and Financial Reporting: A Pan-European Perspective in the Context of Adoption of IFRS Frédéric Gielen Lead Financial Management Specialist Europe and Central Asia Region THE WORLD BANK

The objectives of our research The objective of our research   The objectives of our research Investigate the relationship between Financial and Tax Reporting Investigate the possible Effects of the Utilization of IFRS on that relationship

The scope of our research Luxembourg; Poland; The Netherlands; The UK  Belgium; Denmark; Estonia; France; Germany; Luxembourg; Poland; The Netherlands; The UK

Our initial findings…… The scope of our research Our initial findings……

Preliminary Situation Analysis - Belgium Belgium Basis of Assessment Annual accounts prepared in compliance with Belgian accounting standards Consequences of IFRS on tax Alignment/Dependency of tax and annual accounts Limited by not currently permitting the presentation of annual accounts in compliance with IFRS Belgium Tax rules follow accounting principles in Belgium Currently Belgian accounting standards are not harmonized with IFRS IFRS forum established to work on framework to enable Belgian GAAP to converge Permit annual accounts under Reg. 1606 Allowing for certain adjustments between the “financial” and “taxable” profit None

Preliminary Situation Analysis - Denmark Denmark Basis of Assessment Tax books prepared according to Danish tax rules Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts Limited as tax reporting is independent from financial reporting Denmark Annual accounts are independent of tax rules in Denmark Permit annual accounts under Reg. 1606 All

Preliminary Situation Analysis - Estonia Estonia Basis of Assessment Distributions to shareholders Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts Limited as tax computation is assessed based on the distributions to shareholders Estonia Unique framework as tax base is from distributions not profits Permit annual accounts under Reg. 1606 All

Preliminary Situation Analysis – France Basis of Assessment Annual accounts prepared in compliance with French accounting standards Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts Reg. 1606 has no direct impact as not allowable for tax reporting but as French GAAP is converging with IFRS there is an impact but it is measured and controllable France Tax rules follow accounting principles in France French Accounting Board to modernize French GAAP by implementing some IAS/IFRS standards over a time period Permit annual accounts under Reg. 1606 French accounting rules are converging with IFRS, thus impacting tax bills None

Preliminary Situation Analysis - Germany Germany Basis of Assessment Annual accounts prepared in compliance with German accounting standards Accounting principles follow tax rules in Germany Alignment/Dependency of tax and annual accounts Consequences of IFRS on TAX Limited by allowing IFRS for informational purposes only Germany Currently German accounting standards are not harmonized with IFRS Permit annual accounts under Reg. 1606 Expert group discussing moving away from the dependency on annual accounts for tax reporting All

Preliminary Situation Analysis - Luxembourg Expert group discussing the possibilities of IFRS statements for tax purposes without a reconciliation Basis of Assessment Annual prepared in compliance with Luxembourg accounting standards Accounting principles follow tax rules in Luxembourg Alignment/Dependency of tax and annual accounts Consequences of IFRS on TAX Limited by requiring a reconciliation back to tax reporting requirements Luxembourg If option is used required to reconcile to local tax GAAP if using IFRS for Individual entity accounts Permit annual accounts under Reg. 1606 Tax profit is similar to accounting profit allowing for certain adjustments between the “financial” and “taxable” profit Listed companies Unlisted banks

Preliminary Situation Analysis - Poland Basis of Assessment Tax books prepared according to Polish tax rules Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts Poland Limited as tax reporting is independent from financial reporting Annual accounts are independent of tax rules in Poland Currently Polish accounting standards are not harmonized with IFRS Permit annual accounts under Reg. 1606 A reconciliation between taxable profit and financial profit is a mandatory note to the annual accounts Listed companies

Preliminary Situation Analysis - Netherlands Permit annual accounts under Reg. 1606 All Consequences of IFRS on TAX Alignment/Dependency of tax and annual accounts Basis of Assessment Limited as tax reporting is independent from financial reporting Tax books prepared according to Dutch tax rules Annual accounts are independent of tax rules in the Netherlands Netherlands

Mr. Wayne Weaver, Tax Partner Banking & Capital Markets Preliminary Situation Analysis – United Kingdom United Kingdom Mr. Wayne Weaver, Tax Partner Banking & Capital Markets Deloitte & Touche LLP

reporting requirements Preliminary Analysis – Important Considerations Emerging High Level Policy Considerations Compatibility of IFRS with corporate tax reporting requirements Convergence of taxation policies/models in the EU Consolidated tax base in the European Union Maintaining dependencies between tax and financial reporting “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing” Jean-Baptiste Cobert, Minister of Finance under Louis XIV

Research Paper will be available for review in May/June 2006 Final Paper Research Paper will be available for review in May/June 2006 We look forward to presenting our final findings at that time Thank you