The Use of Financial Reporting Standards-Based Accounting for the Preparation of Tax Returns

In recent years decisions in a number of cases appear to have indicated a move towards an even greater reliance on accounting for tax purposes. While commercial accounts prepared on the basis of financial reporting standards may often be the most appropriate basis for taxation reporting and the preparation of tax returns, this is not always so. An example of the adoption of a Financial Reporting Standard into the New Zealand tax legislation shows that there will always be differences, and that perfect harmonization between taxation and accounting is unlikely. The global move towards International Accounting Standards could also be seen as a reason for reviewing the uneasy relationship between accounting principles and practice and taxation law and a step to harmonizing the tax base. Clearer more comprehensive and applicable principles especially for taxation policy and practice are necessary. Alternative steps towards greater harmonization in the form of international multilateral instruments and a model tax convention have been suggested.