ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

IFRS Implications on Corporate Taxes－Evidence from EU Countries－

  • Nam-Ryong Lee Korea Aerospace University

Asian Tax Journal Vol. 10 No. 3 (2009), pp. 211-234

Abstract

Starting in 2011, publicly－traded Korean firms will be required to switch from Korean GAAP to International Financial Reporting Standards(IFRS). To assess what impact this switch will have on corporate taxes, I attempt to quantify the potential tax effect by looking at this affect on European Union(EU) firms after IFRS adoption in 2005. Using EU data for all publicly－traded firms of 2002－2007 period, I find that while post－IFRS effective tax rates for countries with high book－tax conformity slightly increased, the variability of effective tax rates between countries decreased. A reduction in the variance in effective tax rates after IFRS implies that reporting became more standardized across countries and IFRS would provide elements of a common and harmonized tax base. I also examine changes in net deferred tax following the adoption of IFRS and the results are consistent with predictions in prior literature. Both changes in net deferred tax and the variability of net deferred tax increased largely. To the extent a similar effect occurs in Korea, conversion to IFRS will have a significant effect on corporate taxes, due to the intertwined relationship of accounting rules and tax regulations.

Keywords

  • IFRS adoption
  • impact on corporate taxes
  • effective tax rates
  • standardization
  • net deferred tax

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