THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IN THE CZECH REPUBLIC AND ITS IMPACT ON CORPORATE TAXATION

The worldwide adoption of the International Financial Reporting Standards (IFRS) has not affected financial reporting only, but it has also impact on taxation systems. Countries with a high level of book-tax conformity (dependence) have to solve whether and at what extent to allow IFRS results for the corporate taxation. The paper deals with the specifics of Czech Republic, which is an example of open small economy with relatively high subordination of accounting to taxation purposes. To allow IFRS in tax fillings of those entities preparing statutory financial statements in compliance With IFRS may thus represent a comparative advantage for Czech economy: We hypothesize that usage of IFRS for tax purposes is "win-win-win" situation, as it may (1) significantly decrease the compliance tax costs of IFRS entities; (2) increase the capability of tax authorities to supervise the fulfilment of tax duties by IFRS entities; (3) create a favourable tax regime attracting foreign companies to tax their sources of income in the Czech Republic/mitigating the motives of Czech companies to transfer profits abroad. We support our findings by the analysis of micro- and esp. aggregate tax data showing that (a) taxation rules have a greater influence on tax base than accounting profits, (b) changes in reported accounting profits are a function of business cycle rather than a function of changing tax rates and/or a function of accounting method choices.