Wage Conformity : Book Tax Conformity

1176 Words Dec 4th, 2014 5 Pages
Level of Book-Tax Conformity
Book-tax conformity refers to a one-book system in which financial accounting income and taxable income are highly conformed. In the past decade, book-tax conformity has been a fiercely debated issue worldwide. The main issue with book-tax conformity is whether tightening the link between financial and taxable income reduces earnings management and tax avoidance activities by pressuring to increase reportable profits for the market on one side and minimize taxation balancing on the other to create a good equilibrium in listed companies. Book conformity is an institutional feature used in many European countries such as Sweden. Substantial movement in Sweden has been made in order to stay away from a one-book system; however, Sweden is still considered a country of high conformity where the use of both tax dominated single accounts and group accounts that are allowed to classify profits in a different way.
The major users of the financial statements in Sweden include investors, bankers, creditors, and the public. Due to the diversity of the users, financial and tax reporting cannot be in conformity for all business transactions; therefore, some exceptions are made in order to meet certain specific tax purposes resulting in partial conformity. For example, certain types of assets, financial instruments, and real estate are taxed on a realization basis with capital gains tax principles, while other types of assets such as stocks, construction…

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