The introduction of new financial reporting standards in the European Union (EU) is having significant direct consequences for many of the preparers and users of financial information. These consequences are generally well documented and explored by many distinguished experts. However, less well documented are some of the indirect consequences of the implementation of new financial accounting standards in the EU. One such area is in the relationship between corporate financial accounting (‘financial accounting’) and corporate income tax accounting (‘tax accounting’).
In some EU Member States a long-standing and complex relationship exists between financial accounting and tax accounting which may be significantly influenced by the introduction of new financial reporting standards such as International Financial Reporting Standards (IFRSs). In this paper we review the effects of the introduction of new financial reporting standards on tax accounting within the EU. This paper also assesses the evolution of the relationship between tax accounting and financial accounting in the context of the growing influence of IFRSs. This paper recommends that consideration should be given to macro-economic implications of associating or disassociating financial accounting and tax accounting, noting that this decision should only be made after considering related policy issues at the highest level within relevant government agencies and a thorough consultative interaction between these agencies and relevant private sector advisers and interest groups.