Abstract

This paper is to suggest proposal on separating tax laws from accounting standards in the IFRS era of Korea. Because IFRS has been implemented since 2011 in Korea, it is not easy to conform tax laws to accounting standards － especially IFRS. Therefore, it is time to think about the separation of tax laws and accounting standards. In this regard, this study is to propose the specific methods for the separation of taw laws and accounting standards. If the separation were completed in a short time, there would be huge confusion in Korea,because Korea is one of the countries that have high book－tax conformity. Therefore, this study suggests more systematic approach for the separation by preparing a short－, middle－, and longterm plan respectively. As the short－term plan, we search tax codes that cite accounting standards directly and examine whether to change them or not. As a result of examination, we find some tax codes simply citing the name of financial reporting purpose documents and tax treatments for accounting revenue or expense. They are not needed to change in a short period. The other tax codes being dependent on accounting standards, however, are to be changed. We propose new codes for them. The middle－term plan is to completely separate some revenues and expenses that can be recognized by tax laws, but cannot be allowed by IFRS. For example, depreciation, bad debt allowance, inventory evaluation, and effective interest rate can be subject to the middle－term plan. According to the middle－term plan of this study, tax codes related with these items must be changed into new ones. In this paper, we propose how to prepare the new codes. The long－term plan is to completely separate tax laws from accounting standards, and build a two－book system in relationship of tax laws and accounting standards (current system is a onebook system). In the one－book system, tax codes explain how to adjust accounting income into tax income. However, in the two－book system, tax laws enact the specific definition of revenue/expense and asset/liability which is needed to calculate tax income. In this perfectly separate system, tax laws should be conclusive and elaborate in defining all terms in tax laws, as like that in IFRS. In addition, to report correct future tax income, all assets and liabilities are separately recorded according to tax law. This paper may be the first proposal to suggest specific plans for separating tax laws from accounting standards. In this regard, we wish that this paper be contributed to academic and practical societies in Korea.

Keywords

• Book－tax conformity
• Separating tax laws from accounting standards
• IFRS

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