ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Necessity of Amendment of Corporate Income Tax Law for the Introduction of International Financial Reporting Standards

  • Kim Moonchul Kyung Hee University
  • Junkyu Lee Kyung Hee University

Asian Tax Journal Vol. 9 No. 2 (2008)

Abstract

This study reviews differences between International Financial Reporting Standards(IFRS) which will be introduced on or after 2009 and the current version of Generally Accepted Accounting Standards in Korea(K-GAAP), analyzes several tax issues arising from the introduction of IFRS, and suggests remedies for those issues.First, there are several expense items that firms should reflect on their books in order to make tax-deductible. If there exist differences on recognition criteria of theses expenses between corporate income tax and IFRS, firms face to tradeoffs between tax savings and avoidance of violating IFRS. If they decide to follow income tax law, they can get tax savings but, resulting in violation of IFRS. These examples include goodwill amortization, impairment losses, asset revaluation, valuation of leased asset. In order to resolve these potential problems, we need to revise tax law so that the differences are adjusted through tax reconciliations or impairment losses or valuation losses are treated as deemed depreciations.In addition, the expenses which have been treated in the same way as GAAP in recognition criteria and measurement methods, we need to revise corporate income tax law to eliminate tax law-IFRS differences. These items include classification of lease, recovery of impairment loss, contact costs under the percentage of completion method, interpretations on recognition and measurement of financial instruments, succession of loss carryforward under merger and split-up and valuation of inventories.

Keywords

  • International Financial Reporting Standards(IFRS)
  • tax reconciliation
  • tax deductions allowed by book entry

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