Reconstruction of tax balance sheets based on IFRS information:A case study of listed companies within Austria, Germany, and theNetherlands

The internationalisation of financial accounting and the European Commission’s ambition toharmonise corporate taxation have raised the question whether IFRS accounts could be usedfor tax purposes. In order to quantify the effect of an IFRS-based taxation on corporate taxburdens in different EU member states, we estimate firms’ tax equity using notes on incometaxes in IFRS financial statements of companies listed in Austria, Germany, and the Netherlands.The difference between estimated tax equity and IFRS-equity, adjusted for the effectresulting from the recognition of deferred taxes, indicates the effect of using IFRS as a taxbase on corporate tax burden. We find that estimated tax equity is mostly lower than IFRSequity,indicating that an IFRS-based taxation would often increase the corporate tax burden.The median of estimated tax equity is 5.6% (Austria), 6.4% (Germany) and 9.0% (the Netherlands)below IFRS-equity. Our results suggest that using IFRS for the determination of taxableincome would often increase corporate tax burden. However, an IFRS-based taxationdoes not always induce higher equity as often argued in the literature. In 307 of 1.113 totallyanalysed firm-years, estimated tax equity exceeds IFRS-equity. Analysing IFRS-tax differenceson a balance sheet caption level, we find that the most important differences can be observedfor intangibles and provisions. We find for all three analysed countries that IFRS-taxdifferences relating to inventories, receivables, and liabilities are typically small. We alsoapproximate the total stock of unused tax losses and the amount of useable tax losses whichcan provide additional information about the management’s estimates of future earnings. Wefind that deferred tax assets for unused tax losses are depreciated to a substantial extent,indicating that companies often assume insufficient future taxable income to utilise the totalstock of tax loss carry-forwards.