Gavana G., Guggiola G., Marenzi A. (2015).

Aligning taxation and international financial reporting standards: Evidence from Italian listed companies. Politica Economica, vol. 31, pp. 77-96

Abstract:

We estimate the effect of adopting International Financial Reporting Standards results (IFRS) as the base for the regional business tax (IRAP). Analysing the unconsolidated financial statements of non-financial Italian listed companies, we simulate the change in the IRAP base where companies move from Italian Generally Accepted Accounting Principles (GAAP) to IFRS. The results show that the impact of the use of IFRS for the computation of tax figures is relatively important and that the sector in which companies operate has a decisive influence on the amount by which the taxable base differs. The empirical analysis suggests that the transition increases, on average, the IRAP base of around 15% and that companies in the constructions and utilities sectors suffer an additional burden of around 29% and 31%, respectively. Similarly to Italy, many European Member States are characterized by creditor protection oriented domestic GAAP and by a close link between tax and financial reporting and could therefore experience similar effects due to the use of a IFRS-based tax accounting.