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Top1. Introduction
Up to date research in the field of financial corporate taxation does not seem to take into account sufficiently the principles and rules of International Accounting Standards/International Financial Reporting Standards (IAS/IFRS, US GAAP), which connect future tax liabilities and payments to reported earnings and financial structure (Poterba et al., 2011). Researchers in the field of accounting highlight and recognize the potential impact of accounting rules on disclosure of profit and market valuation of firms, but little reference is made to political choices related to firm tax planning and the public tax policy exercised. The divergence of Book earnings from the Tax earnings and its correlation with maintainability and more generally the quality of corporate profits has attracted the interest of several researchers (Chen et al., 2012; Desai, 2005; Hanlon and Shevlin, 2005; Ready, 2011).
According to the Greek Accounting Framework1, the Tax burden in Financial Statement for a period is based on the taxable and deductible amounts that will be shown on the tax return for the current year (Current Tax). This doesn’t affect the profit and loss Statement and is reported briefly through the profit and loss distribution Statement. This picture changes radically for the firms listed in the Athens Stock Exchange (ASE) that complies with the mandatory adoption of IAS/IFRS2. According to IFRS Current and Deferred Tax should mainly be recognised as income or expense and included in profit or loss for the period in a transparent and internationally comparable manner, thus disengaging the latter from national taxation requirements and restraints.
This paper aims to illustrate the meaning and function of deferred taxation and to highlight the role and importance of Deferred Tax Positions (DTPs) in Financial Statements, focusing not only on the size or changes but identifying and categorizing their causes3. Additionally, we will assess the impact of changes to the business environment related to deferred taxes (DT), as in the case of changing corporate tax rates,and the effect of corporate government chracteristics on financial report.
Deferred Tax Positions incorporate the estimated future tax effects and seek to bridge the gap between Reported Income and Taxable Income4. The latter arise mainly from the different laws and regulations in the calculation of book and tax income and are due to “Temporary Differences” between book and tax value (basis) of Assets and Liabilities. The Generally Accepted Accounting Principles (GAAP) require firms to revalue the items of Deferred Taxes (DT) on their statement of financial position in every case of changes in tax rates or changes in tax laws. DTs are calculated on temporary differences between book and tax value of Assets and Liabilities, multiplied by the institutionalized (or expected) tax rate. Thus a change of the tax rate brings a corresponding decrease or increase in the value of DT in the Statement of Financial Position. The revaluation gap more often than not affects positively or negatively the term Profit or Loss (Net Income) as a result of an increase or decrease of the total income tax cost.